JACKSON HOLE, Wyo. -- The overall
posted no increase in October -- compare that to an average monthly gain of 0.6% over the past two years -- and looks to decelerate between the third quarter (an 8.8% increase) and the fourth (a projected 3%).
Those facts have members of the slowdown crowd screaming that they're finally right, but the unloopy among us will probably want to keep two things in mind.
(a) Weakness in autos came against strength everywhere else.
The ex-autos retail sales series posted a 0.5% increase in October -- precisely its average monthly gain over the past two years -- and looks to accelerate between the third quarter (a 5.7% increase) and the fourth (a projected 7%).
(b) Retail spending accounts for less than half of total consumption expenditure.
Services make up the rest.
Weakness in auto spending might well persist, but that force alone isn't nearly powerful enough to usher in a broader consumption slowdown (autos account for just 4.1% of total spending). Meantime, we won't get a peek at fourth-quarter service-spending for another two weeks, but the fact that income is still growing at one of its fastest rates of the cycle argues against (as does the broad-based nature of the retail gains) any real weakness there.
Four of the past 10 retail sales prints have come in below trend, and none of them has had anything meaningful to say about the broader consumption picture. It is doubtful that this one does, either.
The notion that consumption is slowing in any kind of a meaningful way at all is best described as -- and here we ask Vanna to buy a couple of vowels -- h_rs_sh_t.
productivity and cost
numbers for the nonfarm business sector were
released this morning. (See this recent
column for details about productivity and its components, and note that the numbers have now been revised back through 1959.)
The fact that the compensation and unit labor cost series were showing deceleration as the fourth quarter began is unambiguously bullish -- that's precisely the kind of thing that central bankers want to see.
The fact that productivity growth has stalled -- it has accelerated by only a tenth of a percentage point this year against a 0.8 percentage-point speed-up between 1997 and 1998 -- is not.
Keep this key central-bank quote in mind.
If productivity growth should level out or actually falter because additional technology synergies fail to materialize, or because output per hour has been less tied to technology in the first place, inflationary pressures could reemerge, possibly faster than some currently perceive feasible. ... Accelerating productivity may have appeared to break the link between labor market conditions and wage gains in recent years, but it cannot have changed the law of supply and demand. ... At some point, labor market conditions can become so tight that the rise in nominal wages will start increasingly outpacing the gains in labor productivity, and prices inevitably will then eventually begin to accelerate.
And the question to be answered is this.
Will the compensation and labor-cost numbers cheer policymakers enough to keep them from tightening?
Or will a stalled productivity number weigh more heavily?
We find out on Tuesday.
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