x
Your preference has been saved. Remove your saved preference.
You must supply both a username and a password to login.
You must supply a username, password and token to login.
Sign on
Passport secured login icon  
 
Wealth Management
Asset Management
Asset Servicing
Insights & Research
About Northern Trust
Search go
Click to close drop down menu.
 
Click to close drop down menu.
Financial Intermediary
Learn about asset management solutions designed for Retirement Plan Advisors, TAMPs/Outsourcing Providers, Subadvisory Program Sponsors, RIAs/Financial Advisors and Trust Institutions.
Institutional
Learn about asset management solutions including: global index management, active equity and fixed income, target retirement date funds, and manager of manager programs.
Individual
Get answers to your investment challenges with asset management capabilities including alternatives, exchange traded funds, fixed income, mutual funds and tax-advantaged equity.
Click to close drop down menu.
 
Northern Trust Logo
 

Weekly Economic Commentary

 
.
 
 
 
 
 
 
 
 
.
 

Economic Reports Vindicate Fed’s Extraordinary Actions

September 14, 2012

Download PDF version

Financial markets were greeted with a slew of disappointing economic indicators this morning, after the new monetary policy salvo the Fed provided yesterday to raise the level of economic activity. Higher gasoline prices, an increase in auto sales and purchases of building materials (+1.0%) provided a lift to overall retail sales in August (+0.9%). However, excluding these three components, retail sales slipped 0.1% in August versus a hefty jump in July. The turnaround in July retail sales (+0.8%) after a sharp plunge in the third quarter (-1.0%) was seen as a promising start for a new quarter. But, August retail sales numbers have dashed these hopes and left the July retail sales readings as an outlier among retail sales tallies of the past six months (see chart below). The main takeaway is that consumption in the third quarter will not be much to write home about, much like that of the second quarter.

Chart 1
Chart 1

 
Among the other reports published today, the weak industrial production numbers for August are consistent with the bearish indications from the ISM factory survey of August, which marked the third consecutive monthly reading below 50 (denotes a contraction in factory activity) All major components of industrial production posted declines in August, with factory production plunging 0.7%. At the same time, business inventories rose 0.75% in July, the largest increase since January. The increase in inventories and lackluster consumer spending suggest that production is most likely to be sluggish in the third quarter.


Chart 2

Chart 2

 
Inflation numbers for August were part of the data releases today. The 0.6% increase of the Consumer Price Index (CPI) during August reflects a 5.6% jump of the energy price index, a 0.2% gain in food prices and a 0.1% increase in the core CPI, which excludes food and energy. Declines in airfares (-1.3%), lower prices for clothes (-0.5%), computers (-1.3%), new and used cars (-0.9%), and tobacco (-0.3%) were a partial offset to the 0.3% increase in owners’ equivalent rent. The trend readings of overall inflation (+1.7%) and the core CPI (+1.9%) are well within the Fed’s inflation target of 2.0%, with the latter posting the smallest increase since July 2011. Actual inflation data and inflation expectations are non-threatening, for now, and allow the Fed to focus on economic growth in the perennial inflation-growth debate. So we close the week on a mixed note, with the Fed fulfilling wishes of the markets and economic data disappointing.

.
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
.
 
 
 
 
 
 
 
.