September data adds to picture of mixed recovery

Raymond James

  • The mid-month economic reports added further to picture of a mixed recovery. Retail sales posted a stronger than expected gain in September, boosted partly by a seasonal quirk. Consumers didn’t exactly “flock to the mall.” August (not September) is the month for back-to-school sales. Reduced strength this August led to a smaller seasonal decline into September – hence, a strong seasonally-adjusted gain. Still, there were gains in other areas. Motor vehicle sales rose 3.6% (-2.6% before seasonal adjustment), up 9.1% from February.
  • Manufacturing output unexpectedly fell 0.3% in September (-5.7% y/y). Despite stronger retail auto sales, motor vehicle production fell 4.0%, down 5.5% from February (while consumer demand is strong, fleet sales to business are weak). Manufacturing has adapted to working under the pandemic, but that’s not been easy. Social distancing has slowed production to some extent, and supply chains are still not functioning smoothly.
  • With the pandemic lasting longer than many anticipated, working from home is expected to be a long-lasting change. That has led to increased demand for housing, which is not typical in weak economy. A home has two functions. It provides shelter and it’s an asset, which can appreciate over time. In the Consumer Price Index, the Bureau of Labor Statistics seeks to measure the shelter price, not the asset, and (for homeowners) it considers what it would cost to rent the house. Owners’ equivalent rent, which accounts for nearly a quarter of the CPI, rose 0.1% in September, up 2.5% from a year ago
  • In the months ahead, economic activity is expected to expand further, but will remain mixed as consumers and businesses adapt to living under the pandemic. Unemployed workers will be reallocated, but these transitions are rarely smooth and quick. There will be a number of challenges in the new year, including increased pressures on state and local governments.
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