Weekly Bond Commentary
In spite of what consumers tell confidence surveyors, they continue to spend with gusto.
September retail sales were much stronger than had been expected, and those in July and August were revised higher. Even excluding the more volatile auto and gasoline sales, core retail sales also were well above forecast, pointing to strong gross domestic product output in the third quarter. Weekly jobless claims surprisingly fell last week, from a revised 211,000 to 198,000—the lowest level since January—indicating the labor market remains strong. Not to be outdone, manufacturing and industrial production in September also surprised to the upside, despite being restrained by the ongoing auto worker strike.
Economists, investors and policymakers follow these reports closely. That’s because consumer spending makes up more than two-thirds of GDP, and manufacturing, while relatively smaller, employs more higher-paying jobs than many service sectors. Given this one-two punch, third quarter GDP seems likely to surprise again to the high side.
Federal Reserve Chair Jerome Powell spoke at the Economic Club of New York last week. He reiterated that the central bank will proceed carefully and be patient in the face of a resilient economy. He didn’t bless any specific level of long-term rates, but acknowledged the recent rise in Treasury yields may have done some work for policymakers. In short, time will tell.