Economic data was being watched perhaps a bit more closely this last week with the Fed meeting upcoming and talk of the ‘taper’ hanging in the balance.

(-) Retail sales for August gained a meager +0.2%, which disappointed a bit relative to the expected +0.5% increase.  Removing auto and gasoline components brought the core sales number to +0.2%, which still trailed the anticipated number by a tenth.  On the positive side, June’s gain was revised upward by a tenth, although we’re talking about fairly small numbers all the way around.  In August, apparel sales and building materials were disappointing, down almost a percent in the usually important back-to-school shopping and home construction seasons.  On the positive side, autos and parts gained a percent, which explained the difference between the headline and core figures.  Retail sales have been somewhat sporadic as they often are month-to-month, and have slowed as of late—although the more important twelve-month gain stands at +4.7%.  This recent tempering of retail ‘consumerism’ may certainly be a factor in the Fed’s decision-making, being that consumers represent 70% of the economy.

(0) The headline Producer Price Index for August rose +0.3% (+1.4% year-over-year), which was just a tick above forecast.  The core PPI was flat (+1.1% year-over-year), compared to an anticipated +0.1% rise.  The difference between the two was entirely explained by gains in food and energy prices in the month.  Similarly, import prices were flat in August, relative to an expected gain of +0.5%, with rising petroleum prices offset by falling capital and consumer goods imports.  As seen by the year-over-year figures, inflation from these measures continue to appear subdued.  The year-over-year decline of almost half a percent in import prices is especially low.

(0) Business inventories rose for July rose +0.4%, which was double the gain expected—this contains a total of individual manufacturing, wholesale and retail inventories.  Retail as a component gained almost a percent, which is the largest increase in six months.  Wholesale inventories gained only a disappointing tenth of a point, as a large drop in non-durable goods (farm product raw materials in this case) offset strength in durable.

(-) The Univ. of Michigan consumer sentiment survey dropped from August’s 81.1 to 76.8 for September in the early release—despite expectations for a small gain.  Consumer assessments of present conditions and future expectations both fell, which could have been related to flatting of housing market indicators in recent weeks and/or higher interest rates, but Syria was also mentioned as a pessimistic factor.  Inflation expectations rose a bit, to a median level of 3.2% for the coming year and 3.0% for the upcoming five years, although these remain well within traditional ranges.

(0/-) The NFIB small business optimism index came in flat for August, at 94.0, despite expectations for a gain to 95.0.  Forward-looking categories in the index generally improved, such as hiring plans, sales and capex activity; while trends in current earnings worsened somewhat, as did expectations for the economy in general.  Despite these sporadic readings, small business owners appears more optimistic than they have for some time (the readings are actually near a post-crisis high) but certainly lower than during other expansionary cycles.  This is not a surprise, as small business owners have remained more skeptical and conservative for a variety of reasons.

(0) Initial jobless claims for the Sept. 7 week fell dramatically from the previous week to 292k—far below expectations of 330k.  But wait, there’s a catch…two states weren’t able to file their numbers due to computer system upgrades (the states weren’t identified, but it’s likely one was Nevada).  So, essentially, the entire report has to be thrown out.  Continuing claims for the Aug. 31 week came in at 2,871k, which was lower than the 2,960k expected.

(0) The Federal JOLTS (Job Openings and Labor Turnover Survey) for July was mixed.  Job openings declined to 3,698k from an expected 3,900k, and the hiring rate was unchanged at 3.2% of employment.  However, the layoff/discharge rate fell a tenth to 1.1% (equaling a record low) and the ‘quit rate’ rose a tenth to 1.7%—which, if it continues, could demonstrate an increasing level of job-seeker confidence (more willing to quit their jobs for better ones).

Lastly, many want to know what the Fed is going to do this coming week (taper or not to taper).  Naturally, it isn’t a question of if, but when, and how much.  A quick non-scientific survey of economists we review regularly puts even money on September and December, although slightly in favor of the sooner meeting.  In terms of magnitude, the amount taper could be in the $10-15 billion range—and likely focused on the Treasury purchases (which currently total $45 bil./month) as opposed to the MBS buys ($40 bil./month) which are arguably more directly impactful to consumers in the form of lower mortgage rates.  We’ll send out more information on Wednesday when the meeting concludes.