Morning Report: Retail sales rise

Vital Statistics:

 LastChange
S&P futures3,950-16.50
Oil (WTI)86.85-1.56
10 year government bond yield 3.44%
30 year fixed rate mortgage 6.12%

Stocks are lower this morning on no real news. Bonds and MBS are down.

Retail sales rose 0.3% MOM in August, which was above expectations. Ex-vehicles they fell 0.3%. Ex-vehicles and gas, they increased 0.3%. Miscellaneous store retailers rose 1.6% MOM and 15.3% YOY. Departments stores rose 0.9%. Food and drinking places rose 1.1% MOM and 10.9% YOY.

The miscellaneous and department store numbers bode well for the back-to-school shopping season which is a good harbinger for the holiday shopping season.

We received a couple Fed reports this morning – the Empire State and Philly Fed regional reports. These reports discuss business conditions generally for the Northeast and Mid-Atlantic. These reports are generally not market moving however the Fed does pay attention to them. Business conditions are slowing overall, but more importantly we are seeing declines in the prices paid and prices received indices. These are more anecdotal measures of inflation, but are encouraging data points for the Fed.

Industrial production fell 0.2% in August, according to the Fed. Manufacturing production rose 0.1%. Capacity Utilization fell to 80%. So far, it doesn’t look like the Fed’s tightening has affected the manufacturing sector yet.

The labor market remains tight as well, with initial jobless claims falling to 213k. Historically, this is an extremely low number. The Fed wants to see the unemployment number tick up in order to slow down wage growth. I know that seems counter-intuitive but it will keep pressure on the Fed to keep hiking rates.

The yield curve continues to invert as the 2 year yield has been rocketing upward. 2s 10s are out to 40 basis points, and 2s 30s are out to 36 basis points. This is a recessionary indicator, and it shows the long end of the curve hanging in there while the short end rises. Note mortgage rates are still rising as mortgage backed security spreads widen. This means the difference between the market mortgage rate and a Treasury of comparable maturity is increasing.

It appears the government has averted a rail strike, which should help prevent even more supply chain issues. That would have been disastrous for the economy if it lasted for any length of time.

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