Retail Sales Drop, Factory Output Falls: U.S. Economic Takeaways

(Bloomberg) -- What you need to know about Thursday’s U.S. economic data:

RETAIL SALES (AUGUST)

• Purchases declined 0.3 percent (forecast was for 0.1 percent decrease), the first drop in five months, after a 0.1 percent advance
• Core sales, which exclude autos, gasoline stations and building materials, fell 0.1 percent in August for a second month (forecast was for 0.4 percent advance)
• Receipts declined in eight of 13 retail categories in August

The Takeaway: After charging through the second quarter, the consumer is showing signs of exhaustion at the start of the second half of 2016.  Core sales, which are used to calculate GDP figures, unexpectedly fell for a second month. A further slowing in consumer spending, which makes up the biggest part of the economy, could make for a smaller rebound this quarter. Some economists trimmed their third-quarter growth forecasts after the retail report and other figures Thursday. Odds for a Federal Reserve rate increase next week were also reduced.

INDUSTRIAL PRODUCTION (AUGUST)

• Fell 0.4 percent (forecast was for 0.2 percent drop)
• Output at factories alone, which makes up about 75 percent of total production, declined 0.4 percent, biggest drop since March
• Utility output decreased 1.4 percent, the most in five months
• Mining production rose 1 percent, the strongest advance in a year as oil drilling continued to pick up with prices

The Takeaway: American manufacturers are having trouble finding their footing after an extended slump coming into the year that was related to the energy sector’s pullback, bulging inventories and the dollar’s surge. The outlook remains tenuous, with the Fed’s report reinforcing concerns sparked earlier this month by a private survey of purchasing managers that showed manufacturing contracted in August. One encouraging development was that oil and gas well drilling increased for a third straight month.

JOBLESS CLAIMS (WEEK ENDED SEPT. 10)

• Rose by 1,000 to 260,000 (forecast was 265,000)
• Four-week average held near 261,000
• Number of Americans on benefit rolls also climbed by 1,000 to 2.14 million

The Takeaway: Jobless claims remain close to four-decade lows and are consistent with growing employment and a stable labor market. With openings at a record high in July, employers have little motivation to lay off skilled workers and those with more experience. Filings have been below 300,000 for 80 straight weeks now, the longest stretch since 1970.

PRODUCER PRICE INDEX (AUGUST)

• Little changed (forecast was 0.1 percent gain) after a 0.4 percent July drop that was the steepest pullback in nearly a year
• PPI excluding food, fuel and trade services rose 0.3 percent from prior month and climbed 1.2 percent from August 2015
• Food costs fell 1.6 percent; energy prices declined 0.8 percent month over month

The Takeaway: Price pressures in the production pipeline remain muted, especially for goods, which are more exposed than services to global headwinds. Inflation continues to languish below the Fed’s 2 percent goal. At the same time, the report showed an increase in health-care prices that are used to calculate the Commerce Department’s consumer spending inflation index, which is the Fed’s preferred price measure.

REGIONAL FED BANK FACTORY INDEXES (SEPTEMBER)

• Philadelphia Fed’s business activity index increased to 12.8, the highest since February 2015, from 2
• Fed Bank of New York’s Empire State gauge at minus 2 after minus 4.2
• Philadelphia Fed measure of new orders rose to 1.4 from minus 7.2
• Empire State’s gauge of bookings slumped to seven-month low of minus 7.5 from 1

The Takeaway: While the headline figures from the Philadelphia and New York Fed banks improved, the devil is in the details. Measures of orders remain weak and sales in the Philadelphia region shrank by the most since April. In New York, shipments registered the biggest contraction since February. After the slide in the Fed’s report on industrial production in August, there’s little to suggest an improvement any time soon.

--With assistance from Sarah Ponczek To contact the reporters on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net, Shobhana Chandra in Washington at schandra1@bloomberg.net, Patricia Laya in Washington at playa2@bloomberg.net. To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle