Staying relevant when faced with a sea of irreverent investors is always a hard thing. And in that regard, the dim September health-check on U.S. consumer activity fits the prevailing pattern of weakness for U.S. pre-market action. European stocks have dragged down sentiment on this side of the pond based upon a sense that the global economy is slowing and not growing. And for its part, a larger-than-expected dip in September consumer spending of 0.3% fits the bill perfectly.
The slightly worrying thing for U.S. investors, although we must underline that a U.S. recession is unlikely, is that the core reading of sales used to compute GDP consumer spending fell by 0.2% last month and for the first time since January. That’s not a healthy way to end the third quarter. This measure excludes food services, autos, home improvements and gasoline consumption. However, this is not the be-all-and-end-all for the U.S. economy given the record lofty levels to which consumer spending has recovered, which should include the impact of lower interest rates on auto spending. The prior month of August saw the GDP measure rise by a hearty 0.4% and so making the task of resigning the reading to redundancy somewhat easier.
What’s likely adding to investors’ nervousness is whether the latest reading for retail spending marks the end of the near 45-degree rise since March 2009 that coincides with the onset of the bull market. Perhaps the consumer just took a break in September. While wages are not rising, employment continues to do so, which may keep the trajectory for spending intact for the remainder of the year. The overall report saw sales of eight of the 13 major groups decline including autos, building materials, furniture, gasoline and clothing stores. Gasoline receipts were partly lower on account of a 7¢ per gallon reduction in the national daily average price of gasoline in September. In short the market was already in a bad, bad mood ahead of the largely known weakness in retail sales this morning. Even the best report of the year would have failed to make much impact on investor sentiment captivated by signs of the bear and other factors such as the spread of the Ebola virus.
Chart – Retail sales hurt by weaker auto sales and building material demand