Wednesday, March 14, 2018
Ahead of today’s market open, we see two metrics on economic development: the Producer Price Index (PPI), also known as the “other shoe dropping” from yesterday’s Consumer Price Index (CPI), and Retail Sales for the month of February. Results were mixed, but neither was harrowingly out of range.
The CPI numbers yesterday were exactly in-line, but today’s PPI headline result for February reached +0.2%, better than the +0.1% expected. Ex-food & energy pricing, that number remains +0.2%. Year over year, we’re looking at 2.5% growth in producer pricing, 2.7% ex-food & energy. Trade results, month over month, were up 0.4%; year over year ex-food & energy that’s 2.8%. Ultimately, these yearly results were a bit hotter than expected, but at 2.8% nobody is weeping about overwhelming inflation crushing their dreams…
Retail Sales missed the mark — pretty widely, at that — when it posted a negative 0.1% versus a +0.3% expected. January’s headline number was revised to -0.1% as well. Ex-autos, this retail figure improves to +0.2%, suggesting the sales miss is relatively contained from last month, but it’s still lower than the +0.4% expected. We don’t see significant differences in the control numbers, and last month numbers are unchanged.
These tepid numbers overall reveal that a plurality of Americans, though expressing confidence as consumers, have yet to see much of a favorable impact from the big tax cut passed by Congress ahead of 2018. The reason this is important is that Fed officials, who will decide on interest rates next week and throughout the year, are looking for signals of our economy overheating. Certainly a big tax cut package ($1.5 trillion over the next decade) would be a factor in any such signals.
So far, we’re not seeing much difference from what we’ve seen in terms of CPI, PPI and Retail Sales that we’ve seen in past weeks, months and quarters. That we have big, new realities with which to contend — including tax cuts, interest rate hikes, steel & aluminum tariffs, and global concerns — are not to be ignored, but do not look to be impacting market activity today.
Expect the Fed to raise rates another 0.25% next week. We’re up off the canvas from the long recovery following the Great Recession, but not by much: 1.5% bank-to-bank interest rates will ratchet up to 1.75-2.00%, but this is ultimately a healthy sign. We’re still near historic lows, but have at least a little wiggle room lower in case of future economic hardship.
Yesterday, markets sold off. Today we see futures in the green, but lower than they were when I first starting writing this article: the Dow is up 90 points, Nasdaq +27 and the S&P 500 roughly +7. Much of our current market expectations are baked in the cake. But there’s always room for more ingredients…
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