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POWELL-FRIENDLY DATA: FRIDAY ECONOMICS GIVE JAY SOME BACK-UP

A flock of indicators visited investors on Friday, most of which seemed to validate Fed Chair Jerome Powell's tough talk about slower easing in the face of economic strength.

Receipts at U.S. retailers USRSL=ECI grew by 0.4% last month, a bit stronger than the 0.3% estimate, but half the pace of September's upwardly revised 0.8% increase.

Scratching below the surface of the Commerce Department's Retail Sales report, a 1.6% jump in auto sales and a 2.3% surge in electronics/appliances were largely responsible for the beat.

Spending dropped more than 1% on home furnishings, health/personal care, sporting goods/hobbies, capping the headline.

Excluding cars, retail sales grew by a less impressive 0.1%.

Core retail sales - a metric which excludes cars, gasoline, home improvement and food/drink services and is closely associated with the consumer spending element of GDP - defied the expected 0.3% gain by falling 0.1%.

This, however, is on the heels September's 1.2% jump, revised sharply upward from the originally stated 0.7%.

"Retail sales surprised to the upside as we expected and showed signs of reacceleration after a few months of sluggish activity," writes Scott Helfstein, head of investment strategy at Global X.

"The reacceleration of retail sales is not strong enough to cause concern for the Fed and indicates that the consumer remains healthy prior to any major policy shifts such as tariffs that may come next year," Helfstein added.

Turning from consumers to output, industrial production USIP=ECI fell by 0.3% last month according to the Federal Reserve.

The print hit the consensus bull's eye, as hurricanes and the protracted Boeing strike took their expected toll.

Manufacturing output USFOUT=ECI also behaved by delivering the 0.5% drop analysts predicted.

"Manufacturing output will rebound this month now that the Boeing strike has ended and the weather has been largely storm-free," says Samuel Tombs, chief U.S. economists at Pantheon Macroeconomics. "But taken together, the regional Fed manufacturing surveys suggest that the underlying trend in industrial production remains flat."

"What’s more, a renewed downturn in manufacturing output looms if Mr. Trump imposes big tariffs on imports, raising costs for US manufacturers and provoking overseas trading partners to slap similar tariffs on US exports," Tombs adds.

Capacity utilization USCAPU=ECI, a yardstick of economic slack, slackened further to 77.1% from 77.4%, the lowest the measure's been since April 2021.

The cost of goods and services imported to the United States USIMP=ECI unexpectedly heated up by 0.3%, moving in the opposite direction of the 0.1% drop predicted by economists.

The Labor Department's report also showed export prices rose by 0.8%.

The data differs from other major inflation indicators in that issues of currency exchange rates, fuel costs, foreign demand and geopolitics can move the needle.

This time, it appears to have been fuel costs driving the upside surprise.

Even so, it's yet another indication that inflation took a side trip last month on its way back down to the Fed's target.

"The pace of nonfuel price increases continues to be modest and will remain supportive of subdued goods inflation," says Matthew Martin, senior U.S. economist at Oxford Economics. "Looking forward, a stronger US dollar in reaction to President Trump's election victory will weigh on import prices."

Finally, the value of goods stacked in the store rooms of U.S. businesses USBINV=ECI increased by a nominal 0.1%, weaker than the 0.2% average estimate.

Private inventories have been a net drag on U.S. GDP for five of the last eight quarters.

(Stephen Culp)

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