October is often an “interesting” month for financial markets. No exception this year. At week’s end, global equity prices appear to have settled after a major slide. The yield on 10-year Treasury bonds dipped below 2.0 percent on Wednesday and Thursday. WTI oil prices appear to have temporarily stabilized at around $81/barrel.
The dollar weakened against the euro this week as the European Central Bank appears increasingly hamstrung in its efforts to provide monetary stimulus for the European economy. The dollar also continued to weaken against the yen, reversing most of the September gains.
Retail sales data for September came in softer than expected, with the headline number down by 0.3 percent. The miss on retail sales added to the downside momentum in U.S. equity markets. Some of the weakness in retail sales may be interpreted as a signal of soft overall consumer spending, but not all of it. We knew that retail sales of automobiles would decline as unit auto sales eased from the robust 17.5 million unit pace of August to a 16.4 million unit sales rate in September. Crude oil prices eased through September and gasoline prices fell, so retail sales at gasoline stations also fell.
Producer prices in September dipped as energy prices dropped. The PPI for final demand fell by 0.1 percent. With WTI crude oil now down to $81/barrel, we will see an even bigger drag from energy in the October PPI and CPI reports.
Business inventories gained 0.2 percent in August, providing a hint that inventories may be a drag on third quarter GDP.
Industrial production for September increased by 1.0 percent, boosted by mining and utilities. Manufacturing output increased by a respectable 0.5 percent even though vehicle assemblies eased for the month.
Initial claims for unemployment insurance fell again for the week ending October 11. The 23,000 claim drop to 264,000 put initial UI claims to their lowest level since April 15, 2000.
Economic, financial market and geopolitical events are muddying the waters for Federal Reserve policy. St. Louis Federal Reserve President James Bullard said Thursday that the Fed may delay ending its asset purchase program.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 10-17-14.