Economic Growth Update

Did Tuesday’s retail sales print throw cold water on the thesis that a slowdown in growth is in the pipeline?

To answer this question, the data needs to be contextualized to understand what new information regarding Q4 has been generated:

• This data release is for the September timeframe, the last month of Q3.

• We are currently 2.5 weeks into Q4.

This is not to say rear-view information should be discounted.  Real, inflation adjusted, retail sales are forward looking data.

• Real retail sales are currently in an uptrend that started in April 2023 after troughing in December 2022.

• Real sales have a long track record of leading employment.

• This suggests that the labor market will likely remain robust for the foreseeable future.

In addition to being a strong print, a big sales driver was real automotive and auto parts sales, which rose 1.3% after a strong gain in August.

Without question, nominal spending is driving this real growth, and is showing no signs of letting up.  A strong labor market, that may get even tighter, is driving this spending.

This continuing growth impulse is reflected in the bond market, with real yields resuming their upward climb after pulling back last week.  Currently 2.47%, up from 2.26% on October 11, 2023. 

Nominal yields closed today at a new high of 4.91%.

So, Wen Slowdown, and Why?