Last Thing The Fed Sees Before Its Rate Hike Decision Will Be Very Ugly

Tyler Durden's picture

Earlier this week we warned that based on the latest Gallup poll of some 15,000 US shopping adults (and thus far more accurate than the Department of Commerce seasonally adjusted, goal-seeked retail sales data), retail spending in August will be a stark disappointment to those once again holding off for a rebound in that all important driver for the US economy - consumer spending. As we showed, August spending was the weakest in nominal dollar terms since 2012...

 

...  and was also the lowest since March, as a result of 4 consecutive months of y/y spending declines.

 

Earlier today, Bank of America confirmed just that using its internal data, which tracks aggregate spending on credit and debit
cards, showing that consumers reduced spending in August.

And they reduced it substantially: According to the Bank, while the drop was not as pronounced as what Gallup reported (which saw average daily spending slide from $91/day to $89/day), it was still enough to dramatically impact the economy: "our headline measure, retail sales ex-autos, plunged 0.8% mom seasonally adjusted."

The weakness was not focused geographically, and was widespread across the nation:

 

As BofA notes, "there was broad weakness in retail sales ex-autos and gas spending growth across metropolitan areas, with seven of the ten largest MSAs showing a monthly decline. The biggest monthly decline was in Dallas, followed by Miami and San Francisco. Both Dallas and San Francisco have experienced strong growth over the prior six months, showing a solid recent trend."

What could be causing this at the aggregate level? One explanation is far weaker than expected back to school sales:

Retail sales in August are typically boosted by back-to-school shopping. Our proxy for back-to-school sales, which includes teen retail stores, sporting goods and categories within electronic stores and school supplies, was up 2.6% yoy on a seasonally adjusted basis. But this is a slowdown from the past few years and consistent with the slower yoy trend in retail sales ex autos and gas (Chart of the month).

 

The late timing of the Labor Day holiday may have created a downside bias to back-to-school sales this August. Many schools start after Labor Day, which may push back-toschool sales from August to September. Indeed, the seasonal factor for our back-to-school composite seems particularly large this year given the notable adjustment in the timing of the Labor Day holiday to the 7th of September this year from the 1st last year.

Some more details:

  • Sales at teen retailers declined 1.3% mom in August on a seasonally adjusted basis, based on the aggregate BAC card data. This left sales down 6.2% yoy, continuing the weak trend over the past few years.
  • The weak performance of teen retailers in August is an indication of a sluggish back-to-school shopping season
  • Spending at sporting goods stores inched up 0.2% mom SA. This left the trend positive with an increase of 2.0% yoy.
  • Budget constrained households continue to direct spending to on-trend athletic apparel (“athleisure”), which is gaining share at the expense of casual apparel.

 

The weakness was most pronounced  at department stores, where sales fell 0.2% M/M and tumbled 3.5% Y/Y.  While this is not a new trend and indicates the shift away from bricks and mortar to online vendors, the lack of any improvement merely confirms the broad weakness in consumer spending in the past month.

Finally, as Bank of America reiterates our conclusion from earlier this week when we observed precisely this only with Gallup poll data, "the weakness in the August BAC data suggests a high risk for softness in the Census Bureau advance retail sales report given that the two measures trend closely. While we know that the retail sales figures are volatile and subject to revisions, it is hard to ignore a weak report."

Why is all of the above particularly important? Because with the August Retail Spending report due out the morning of September 15, it will be the last report on the economy the Fed will read ahead of its "most important if not ever then surely in the past decade" FOMC meeting starting on September 16, and concluding with the 2pm announcement on September 17.

Following today's plunge in consumer confidence (which as a reminder Bill Dudley warned two weeks ago he will be very closely watching ahead of the FOMC meeting) and what is set to be a big drop in the retail spending report next Tuesday, will Yellen really be "data-dependent" if she hikes just as the economy is rapidly downshifting, not to mention the US consumer is about to tap out once again? 

If nothing else, the "Dow-dependent" Fed now has a very clear "data" out to delay its September rate hike by at least 3 months, even if the actual delay driver has nothing to do with the US economy whatsoever.

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XAU XAG's picture

Watch My LIPS

 

Folks are tapped and taxed out.......................get it

Hitlery_4_Dictator's picture

Let me get this straight. This one data points trumps al lthe other strong data points we got the last 2 weeks. I call bullshit. Raise those muther trucking rates!

new game's picture

the fucking fed, huh? this secret org that controls the worlds fiat money systems granting their secret org power never before held by one group, ok - got it. hmmm, and the world is getting very fucked up, hmmm again. oh, and lets not forget the imf, bank of settlements, nato, un ect. all linked together but none the less fucking us over incrimentally. see. way i see it has got to run its course, and that isn't good for average folk. plan accordingly, and see ya at the ridge way yonder. tyme to go do some train'g(survival fun stuff- all afucking lone) up da north, ya know guns and camo fun-ha... have a good weekend...

Kaervek's picture

The question is whether there is more money to be made by continuing QE or crashing the party on purpose. They have proven over and over again that helping our starving economy is not really what they are interested in. I think they know exactly what they are doing and will continue enriching themselves as long as possible, the citizens will have to start realizing what's going on and opt-out of this corrupt system. As long as we take our money to the banks and play the casinos (aka options markets) we are contributing to global misery and sustaining the status-quo.

What I'm trying to say is this current financial system we are partizipating in is utterly corrupt and broken and will need big changes. A single rate-hike is not going to change anything and by focusing on "what the FED is going to SAY" you're just submitting to their power. When did people stop thinking for themselves? We should be selling stocks hands over fist no matter what the FED is trying to communicate anyway. Muppets will get utterly slaughtered by waiting for "signals" instead of using rational thinking and fundamental analysis. They made a casino game out of this beautiful science of economics and called it "investing".

overmedicatedundersexed's picture

made a bet today in the nyse casino , that they will not hike rates and in fact will qeeee - so you know what to do now.

LawsofPhysics's picture

Standing by with more puts...   ...thanks.

Consuelo's picture

 

In the string of QE stints over the past 6 years, didn't one of them come as a 'surprise'...?   So it wouldn't come off as totally 'unexpected' for them to announce another asset purchase program instead of an insigificant rate hike, right...?

Pareto's picture

+1 I covered a short this morning precisely for this reason even though some clear technical measures had been broken - because of what you said - you never fucking know.....and suddenly the market rips higher 1,000 pts at the open - along with your face.

 

cosmictrainwreck's picture

Ditto...I put on some XIV Thursday to hedge the VXX...really thought they'd RIP the bitch today for in your face re both 9/11 and Shemitah, Well, who knows? For sure it will come out of nowhere

Pareto's picture

yup.  for sure outta nowhere and probably over a weekend - where you have no chance come monday morning.  better to cover now - in my opinion.  let them have their two days in the sun (or maybe just a morning), then reload.  if the market continues to swoon - oh well - didn't lose nothing - there's always another train coming down the track.

buzzsaw99's picture

janet "old yeller" yellen:

 

Hey, now, you're an All Star get your game on, go play

Hey, now, you're a Rock Star get the show on get paid...

LawsofPhysics's picture

I see plenty of economic activity, under the table...

Barter is in, all things physical bitchez...

KnuckleDragger-X's picture

Yep, all kinds of things for sale in the underground economy, you just have to look for them.....

Dr. Engali's picture

Nobody has any fucking money. 

LawsofPhysics's picture

Bullshit, I know several with more money that they know what to do with it...  ..IMO, just more evidence of the massive capital and resource mis-allocation caused by central banks.

Two words, "tax shelter".  Look doc, we all know what is coming, "read my lips..."

cosmyccowboy's picture

Over at my neighbors house yesterday, he asked had I seen anyone over at his house? I said no, what's wrong? Someone stole his 450 dollar fishing pole he says!!!

  Man if I was stupid enough to buy a 450 dollar fishing pole the last thing I would do is admit to it!! He actually called the law to report it stolen. Now we have two deputies in two separate cars out here so he can report is pole stolen!!! Probably stolen by one of his drunk buddies too!

 

o

Bell's 2 hearted's picture

yep

 

The Central Bank fueled wealth inequality rearing its head.

 

I like to call it "how many shirts can warren buffet buy?" policy.

 

Does ANYONE think warren buffet (or any rich person) personal spending habits change whether he's worth $40 billion ... or $60 billion?

 

Making the rich richer (at the expense of the poors) has its consequences

Bell's 2 hearted's picture

thomson - reuters same store sales index for august was expected to "stagger" at -0.2% (year over year)

 

but actual came in worse at -0.5%

 

The Gap same store sales expected -0.2%

 

actual ... -2.0%

Tsar Pointless's picture

I'll be fucking stunned if the Fed raises. Unless its goal is to "pull it" now.

Crocodile's picture

Would you be stunned if they raised it by .1% as opposed to .25%?  They may do that to "save face", but my guess is the can gets kicked down the road and then a .1% increase.  The current market gyrations are helping the insiders to profit and to distract.  They are putting out many fires in the shadow derivative markets (think oil & frack patches unwinding) using a trillion per day, yes per day, of "Shadow QE".  If they were to eventually announce QE4, then you know the end/reset is "at the door".

Scooby Doo's picture

It is almost unbelievable that a .25% increase would take this much time & hand wringing.  

Kaervek's picture

At what point are they going to admit that there is never going to be normalization ever?

I like how China gets blamed for counteracting the FED by tightening, but isn't that just reversing the easing they did by acquiring all those treasuries in the first place?

You built enormous structures on a fundament of unsustainable debt and now you can just keep this abomination on it's feet by pumping in more and more debt. Shit, it's going to collapse at some point anyway, so why not milk it for another month it's not like they can save it.

autofixer's picture

Europe is in chaos and under siege.  Perhaps this is the time for TPTB to pull the plug? 

Crocodile's picture

Guess what, when the cost of basic living increases and wages do not; we will spend less by necessity.  Economics 101.  It will get worse as double digit increases on the Unaffordable Healthcare Act will take place for 2016.

 

We already know we will be spending at least 30% less during the holidays this year and our family can't be the only ones.

Tsar Pointless's picture

I'd drop my holiday spending by 30%, but I can't figure out how to drop my spending 30% from zero.

Yen Cross's picture

Get ready for all the Christmas shit to start showing up on shelves next to the Halloween candy.

Scooby Doo's picture

Yen, you haven't been in the stores lately, have you? Lol.  Christmas stuff has been out in mass retailers (Walmart) since the beginning of August.  The Halloween candy has been out since mid-July.