And to think Friday 13th almost started off on a favorable footing. After JPM and even Deutsche Bank's Lavorgnia whacked their Q2 GDP revision estimates to the low 1% range, Goldman joins in the realistic crowd, stating that based on retail sales data, "The report is not far enough off expectations to move the dial on revisions to Q2 (currently pointing to GDP growth in the 1% to 1 ½% range from the preliminary 2.4% rate) or to expectations for Q3." Additionally, the firm now sees a 25-30% change of a double dip.
Retail Sales a Tad Softer in Core; CPI In Line
BOTTOM LINE: Retail sales close to expectations on headline July changes, but soft in core components. That said, the data have no significant implications for growth in Q2 or Q3. Consumer prices for July are in line with expectations as headline CPI rises 0.3% on the back of strong energy prices while core CPI rises at a more modest 0.1%. Core year-on-year inflation remains low at 0.9%.
1. Retail sales rose in line with expectations as far as headline (total and total ex auto) metrics were concerned, but the core sales (excluding building materials and gasoline as well as autos) were weak at -0.1%. Prior data were revised up slightly, but the overall tone of consumer activity remains subdued. The report is not far enough off expectations to move the dial on revisions to Q2 (currently pointing to GDP growth in the 1% to 1 ½% range from the preliminary 2.4% rate) or to expectations for Q3.
2. CPI headline rises as expected (by 0.308%), due to a sizable increase in energy prices (2.6%) while prices of food decline modestly (-0.1%). Core CPI inflation also comes in line with expectations, rising 0.13%. While OER rose for the second consecutive month (by 0.1%) and tobacco prices showed another substantial increase (+1.6%), prices declined in recreation (-0.1%) and medical care (-0.1%). Although core CPI inflation has firmed somewhat in the last three months--the three-month average rate is up from 0.05% in April to 0.14% in July--year-on-year core CPI inflation remains subdued at 0.9%.
Elsewhere, the firm stated there is an "unusually high 25-30% change of a double dip."
Of course, the firm prequalified this statement by adding that "this is not the base case" and that:
An important reason for this is that several components of economic activity that usually help drag the economy down during recessions have already suffered large hits and are unlikely to fall much further, if at all. The list includes: (1) housing activity, (2) capital spending, (3) auto sales and other consumer durables, (4) the household saving/investment balance (which has risen beyond the level normally associated with the current ratio of net worth to disposable income), and (5) employment
In other words, the US has a little chance to double dip because it never emerged. And again, we are back to the question of whether or not we have an ongoing recession in a bigger depression.