US retail spending climbed last month, suggesting that underlying consumer demand continues to play a supportive role in powering growth – but gains were somewhat mixed below the headline level, suggesting that Federal Reserve officials are likely to downplay its accuracy in depicting underlying fundamentals ahead of tomorrow’s decision.
According to figures published by the Census Bureau this morning, so-called “control group” retail sales sales – with gasoline, cars, food services, and building materials excluded – rose 0.3 percent in August, matching forecasts set at 0.3 percent. Total receipts at retail stores, online sellers and restaurants rose 0.1 percent on a month-over-month basis, after an upwardly-revised 1.1 gain in the prior month. Markets were expecting a -0.2-percent monthly headline contraction after July’s surprise increase.
The outperformance was largely driven by a solid increase in e-commerce sales – non-store retailers advanced 1.3 percent. But gas station sales fell -1.2 percent month-over-month as gasoline prices tumbled, motor vehicle and parts dealers posted a -0.1 percent loss, receipts at food services operations fell -0.7 percent, grocery store sales fell -0.6 percent, and general merchandise stores dropped -0.3 percent.
Ten-year Treasury yields are holding steady, and the dollar is trading sideways as traders maintain near 70-percent odds on a half-point move at tomorrow’s Fed meeting.
Canadian headline inflation decelerated as expected last month, landing precisely in the middle of the central bank’s target range, and clearing the way for further easing in the months ahead. Data released by Statistics Canada this morning showed the Consumer Price Index decelerating to 2 percent on a year-over-year basis in August, down from the 2.5 percent increase recorded in July and below consensus expectations set closer to the 2.1-percent mark. On a month-over-month basis, prices fell 0.2 percent.
As has been the case since the Bank of Canada began raising interest rates, mortgage interest costs and rent did the heavy lifting – the shelter subindex rose 5.2 percentage points from the previous year – but with the central bank delivering rate cuts against a declining global rate backdrop, the increase in interest costs continued its long deceleration. The agency noted that the consumer price index excluding mortgage interest costs rose just 1.2 percent in year over year terms, well below the Bank’s target range.
Core inflation, computed as the average of the two price measures now preferred by the Bank of Canada (trim and median), increased 2.35 percent over the same period last year, down from a revised 2.55 percent average in the prior month. Core measures strip out highly-volatile categories, and are often used to develop a better understanding of price pressures in the underlying economy.
Swap-implied odds on at least 75 basis points in easing across the Bank’s October and December meetings are firming, driving the Canadian dollar lower. If other economic data releases remain consistently softer in coming weeks, a half-percentage-point cut looks like a reasonable possibility in October – particularly if the Federal Reserve delivers on prevailing expectations by cutting rates by a similar amount at tomorrow’s decision.