INDICATOR: August Retail Sales and Import and Export Prices

KEY DATA: Sales: +0.4%; Ex-Vehicles: 0%/ Import Prices: -0.5%; Nonfuel: 0%; Fuel: -4.3%; Export Prices: -0.6%; Farm: -2.5%

IN A NUTSHELL: “Consumers are still consuming, but at a somewhat lesser pace.”

WHAT IT MEANS: The broad shouldered consumer continues to spend, though it may be that the declining level of confidence is causing some easing in the exuberance. Retail sales rose more than expected in August but that was due to a surprisingly large jump in vehicle sales. It is tough to get a handle on vehicle demand since a number of large companies are no longer releasing monthly sales numbers, only quarterly ones. The Census Bureau does its own survey so it is not as impacted greatly by the change in practice. That said, it is good that households continue to purchase big-ticket items. People also bought heavily online, spruced up their homes and purchased lots of health care products and sporting goods. There was a sharp decline in gasoline purchases, but chalk that up to falling prices, which were off more than the drop in sales. There were some weak segments of the report. Apparently, households went on diets as sales of both food at home and away were down. General merchandise, clothing and furniture sales also declined. In general, though, this was a decent but not great report.

On the inflation front, I am once again dusting off my microscope so I can see where inflation may be coming from. It is not from imports. Prices of foreign goods were down in August, led by a cratering of petroleum costs. Imported food prices eased back, capital goods costs were flat while vehicle and consumer goods prices moved up modestly. Basically, don’t look for imports (pre-tariff) to add to inflation. On the export side, the trade war battered farm sector saw its export prices fall sharply once again. That wiped out the gains posted in June and July. Businesses selling capital and consumer goods overseas saw their prices go nowhere while vehicle prices fell.

MARKETS AND FED POLICY IMPLICATIONS: The more data that are released, the more it is clear that growth may have moderated but it hasn’t cratered. If the Fed were a “data-dependent” organization, it would have little reason to fear a recession. Actually, that is precisely what Fed Chair Powell said recently. So, why are the markets expecting a rate cut? Because, as I said, the Fed is no longer data-dependent. What it is depending on is anyone’s guess. Maybe it is fear of the equity markets not liking it if it doesn’t do what the equity markets want it to do. Maybe it is Jay Powell’s gut. It ain’t the data, that’s for sure.

As for the markets, it is still all about the ebb and flow of the trade talks. The Chinese seem to be up to their usual tricks. They say they are willing to get married. They start walking down the aisle. But ultimately, they stop and say that they want to think it over more and walk away. They have done all of those during the eighteen months of the trade war and maybe this time it is different, but I will believe it when I see it. Yes, I am a cynic.

The strategy of putting off doing what they don’t want to do has been successful for decades and with the latest Chinese economic data seemingly pointing to a stabilizing economy, the Chinese may be encouraged to start the marriage process again. Just don’t expect them to say “I do” anytime soon. At least I don’t expect that to happen. But hope springs eternal in the hearts and souls of investors, so any movement forward is received with open arms – and higher prices.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.