The Beginning of the End?

Deck the Wal’s… 

Retail sales rebounded in October after a rut in numbers recently but the headline strength was driven by auto and gasoline sales. Excluding those, retail sales only rose 0.1% this month as most retailers experienced (hopefully) just a calm before the holiday season shopping storm. Online retailers, however, continued to see positive results.

Moral of the story: Consumer surveys are pointing to the possibility of a strong holiday shopping season but the decrease in spending reported in September combined with the lackluster increase in October makes me feel meh. However, Walmart’s earnings release this week was quite strong and management increased full-year outlook ahead of the holiday shopping season. Given the reach of this retailer, it serves as a decent read-through for the average American consumer that remains eager to spend. 


Part of the increase in gasoline sales was driven by the increase in gasoline prices in October, which boosted consumer and producer prices. Excluding food and energy, the annual rate of core CPI fell slightly compared to last month. A similar story holds for producer prices, where little inflation was to be found in October aside from that stemming from gas prices. Producer prices, as measured by the PPI, has fallen to an annual rate of 1.1%, significantly lower than the 3.4% rates we were seeing last summer.

Moral of the story: Despite the tariffs imposed on Chinese goods and the tight labor market continuing to push up wages (which have increased 1.2% in the last year) inflation has remained under control, hovering around the Fed’s 2% target rate and affording the FOMC more flexibility with monetary policy. 

Look out below for that looming debt service 

Fed Chairman Jerome Powell testified before Congress this week and his message was consistent with what we heard after the Fed’s last rate cut – interest rates will remain unchanged barring a material weakening (or improvement) of the economy. Of note, however, was Powell’s warning to lawmakers on the unsustainable path of fiscal policy that has inflated the federal deficit to astronomical levels. 

Moral of the story: Monetary policy (controlled by the Fed) has already been shifted toward a more supportive stance through the changes the FOMC has made to the balance sheet and interest rates this year. Fiscal policy (controlled by the Government) also needs to support the economy in the event of a downturn and given our current deficit, policymakers’ ability to help in any recessionary environment might be limited. This becomes an even bigger concern if Democrats pushing for more socialist agendas inflate the deficit further to fund their spending plans.

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