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High-Flying US Consumers Lose Altitude

Don Curren October 16, 2019

The high-flying consumers of the US run into some turbulence in September, with retail sales dipping 0.3% in that month, a result that disappointed expectations of a 0.3% increase and marked the first decline in seven months.

The data suggest consumers, who have proven resilient in the face of escalating global trade conflict in recent months, may finally starting to become concerned enough to start reining in their spending.

The results are consistent with widespread expectations the US Federal Reserve will cut interest rates again at its next policy statement on Oct. 30, and had little impact on the US dollar as a result.

Data from the CME Group on Wednesday morning indicated US interest-rate markets were pricing in an 87.1% chance of a 25-basis-point at that juncture.

The US Census Bureau reported consumers cut back on retail purchases of motor vehicles, building materials, hobbies, and online purchases.

The “control group,” which excludes restaurants, vehicles, building materials, and gas, and has more relevance for GDP data, was flat on the month.

August’s headline gain, initially reported at 0.4% was revised upward to 0.6%, robbing some of the sting from the headline result.

North of the border, Statistics Canada reported he all-items Consumer Price Index rose 1.9% on a year-over-year basis in September, matching the increase in August. On a seasonally adjusted monthly basis, the CPI fell 0.1% in September, matching expectations.

Economists had had forecast that the all-items CPI would rise by 2.1% on an annual basis in September.

Airline ticket fares slumped 20% in September, reversing earlier gains that had been driven by methodological changes in the same pattern that occurred in 2018.

StatsCan said the cost of gasoline fell 10.0% year over year in September, following a 10.2% decrease in August.

The mortgage interest cost index increased 7.5% year over year in September. The index grew through early 2019, peaking at 8.2% year-over-year growth in April and May, the statistical agency said.

Today’s inflation data are unlikely to significantly impact expectations the Bank of Canada will likely remain on hold at its next policy announcement which, like the Fed’s, falls on Oct. 30.

The Bank of Canada’s three preferred measures of core inflation all rose by a tenth of a percentage point from the prior month with the average of the three increasing to 2.07%, still close to the central bank’s target of 2%.

The Canadian dollar slipped modesty against the US dollar after the data were released, taking some of the luster away from its relatively strong performance this week.

Don Curren
Market Strategist and Content Editor

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