KEY DATA: Imports: -1.8%; Nonfuel: -0.4%; Exports: -1.4%; Farm: -2.6%/ Claims: -6,000
IN A NUTSHELL: â€œAnother day of data, another set of solid labor market but weak inflation numbers.â€
WHAT IT MEANS: As we limp exhausted into the final week before the Fed either does something or forces us to face upwards of three more months of water torture, the data seem to be laughing in our faces. We would like the economy to be strong and inflation to be trending upward, but alas only one of those is happening. The good was a drop in the weekly jobless claims numbers. While the weekly data are volatile, the smoothed, four-week moving average has been pretty constant. It is quite clear that few firms are cutting back on their workforces.
On the bad side, if you consider consumer prices that donâ€™t go anywhere a problem (consumers clearly donâ€™t!), the prospects for inflation accelerating anytime soon are not great. Import prices tanked again in August and it wasnâ€™t just energy. Industrial supplies excluding petroleum, consumer goods, vehicles and capital goods prices fell as well. Only the cost of imported food was up and that was due largely to a jump in seafood prices. Looking across the world, prices are down for every major region. Only some Southeast Asian countries increased their prices for goods sold in the U.S. Over the year, the biggest import price declines have come from countries throughout the Americas. The Pacific Rim nations have not been dumping their products on the American markets at greatly deflated prices. As for our exports, every major category posted a drop in prices except vehicles, which was flat. The agricultural sector has seen its prices fall by 14% over the year. That is a big ouch.
MARKETS AND FED POLICY IMPLICATIONS: Right now, investors are totally baffled, in part a consequence of the bizarre Fedspeak. Think of it: We had Bill Dudley saying that the data were â€œless compellingâ€ but Stanley Fischer saying, â€œWhen the case is overwhelming, if you wait that long, you’ll be waiting too longâ€, and â€œThere’s always uncertaintyâ€. So, whatâ€™s â€œcompellingâ€? And, whatâ€™s â€œtoo longâ€? While economists might enjoy the process of parsing sentences and even words, investors simply go crazy. Add to that the reality that if anyone can tell us what is going on in China, then we will all know, you have a state of uncertainty that can only create volatility, which is precisely what we have. One day it looks like China is not that bad and the markets rally. The next day the Fed might raise rates and stocks crash, though I wish I knew why a message that the economy is strong enough to absorb a rate hike is considered bad for business. It just shows how screwed up things are. So, letâ€™s make it through this week and get to next week, when a new group of data, which includes retail sales, industrial production, consumer prices and housing starts will once again cause Fed members to twist like Chubby Checker. At lest they will be doing it in the semi-privacy of an FOMC meeting.