ECB/US retail sales/Claims data/PPI

The ECB is clearly focused mostly on tempering inflation as they took their deposit rate to 4% where there was a mixed view on what they would do. “Inflation continues to decline but expected to remain too high for too long” at the same time they cut its GDP forecasts this year, in 2024 and for 2025. ECB president Christine Lagarde is also hinting at the likelihood of being done with more hikes but will be sufficiently tight for as long as it takes to see a sustainable drop in inflation that stays down.

While continuing on with QT, the market is betting the ECB is done with rate hikes and European bonds are rallying across the board which in turn is helping US Treasuries and the euro is weaker, at the lowest level vs the USD since March.

Core US retail sales in August were a touch light relative to expectations when we include the 3 tenths downward revision to July and the 2 tenths lower revision for June which was followed in August by a 2 tenths upside surprise. Auto sales rose by .3% m/o/m after falling by 4 tenths in July and are higher by 4.5% y/o/y. Building material sales rose .1% m/o/m but were lower by 3.8% y/o/y. Because of the rise in gas prices, spending at gasoline stations jumped by 5.2% in the month alone.

After the Prime Day which juiced July online sales by 1.5%, they were unchanged m/o/m in August. Spending on eating/drinking, the other area of strength this year, rose .3% m/o/m and 9.1% y/o/y. In the key back to school timeframe, spending on clothing rose .9% m/o/m for a 2^nd month and up 3.6% y/o/y. After falling by 1.1% in July, sales of electronics rose .7% but still down 1.6% y/o/y (follows MMM comments on soft electronics). Reflecting a depressed pace of existing home transactions, after most spent on their homes during Covid, furniture sales fell 1% m/o/m and are now down by almost 8% y/o/y.

Bottom line, retail sales are up 3.5% year to date which compares with headline CPI up by 3.4% year to date. While not fully apples to apples in terms of overlap, you get the point that most of the retail sales rise this year has been mostly price and not so much volume.