Strong US retail activity unlikely to last

Real retail sales remain strong, holding above the pre-pandemic trend (dotted line) in September.

Real Retail Sales

Supported by a strong jobs market, with low unemployment.

Unemployment Rate

The labor market remains tight, with employers holding on to staff — cutting weekly hours rather than resorting to layoffs.

Average Weekly Hours Worked

The consumer sentiment trough in June 2022 coincided with a peak in gasoline prices. Sentiment has been rising over the past 12 months but this could be derailed by a spike in gas prices.

University of Michigan Consumer Sentiment & Gasoline Prices

The up-trend in light vehicle sales reflects growing consumer confidence.

Light Vehicle Sales

The NAHB homebuilder sentiment index (blue below) is falling sharply, however, warning that the recent recovery in new building permits (red) is about to reverse. Residential housing is a major cyclical employer and a collapse of building activity would warn that recession is imminent.

NAHB Sentiment Index

Industry & Transport

Industry indicators show gradually slowing activity but no alarming signs yet. CSBS Community Bank Sentiment index indicates slightly improved business conditions in Q3.

CSBS Community Banks Index - Business Sentiment

Investment in heavy trucks — a useful leading indicator — remains strong.

Heavy Truck Sales

Intermodal rail freight traffic — mainly containers — declined in August after a four-month rally. But the longer-term trend is down.

Rail Freight

Truck tonnage increased in August for the fifth month but earlier breach of the long-term up-trend (green) warns of weakness ahead.

Truck Tonnage

Manufacturers new orders for capital goods, adjusted by PPI, indicates declining activity which is likely to weigh on future growth.

Manufacturing Orders: Capital Goods

Conclusion

The tight labor market supports strong consumer spending but high mortgage rates are likely to slow homebuilding activity causing a rise in cyclical employment. A sharp increase in crude oil could also cause higher gasoline prices which would damage consumer sentiment.

Industry and transport activity is gradually weakening but has not yet caused alarm.

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually, then suddenly.”

~ Ernest Hemingway: The Sun Also Rises

Bad Has Never Looked So Good

Energy Burrito writes that gasoline prices have fallen nearly 30 cents from their Summer highs:

Why is this good? Because of the one-penny-to-one-billion spending rule. The rule of thumb is that a one-penny change in the price of gasoline leads to a $1 billion increase in household consumption on an annualized basis….gasoline accounts for $2,500 of household spending each year.

Read more at Bad Has Never Looked So Good | Oilprice.com.