US Close: Stocks decline (It’s complicated), US data mostly impresses

After today’s wrath of economic data, growth concerns for the US economy may have been overdone.  The delta variant impact in both the July and August data clearly impacted large parts of the economy but that did not derail the US consumer’s spending habits last month.  US retail sales in August rose 0.7%, much better-than the expected 0.7% decline.  The accelerating business cycle is clearly happening across both the Empire State and Philadelphia regions.  The Philly Fed Business Outlook impressed with a 30.7 print, higher than the consensus estimate of 19.0.  Jobless claims edged higher to 332,000 from 312,000, but that won’t disrupt the overall trend in the labor market recovery as the past week’s data was impacted by seasonality factors, Louisiana’s surge in claims (+7,664), and as outside activity was curbed. 

This wrath of US economic data was mostly strong, although it is important to acknowledge that July retail sales were much worse than expected.  The US economy is still headed in the right direction and this will allow the Fed to remain on cruise control for a couple more months.  Next week’s FOMC meeting will likely see Fed Chair Powell reiterate they will taper before the end of the year.  If the data continues to show the economy is quickly moving beyond the delta variant impact, a November taper will become widely priced in. 

Today’s risk aversion theme is complicated. US stocks are lower across the board as investors await to see if the economy remains robust and if pricing pressures continue to ease.  The US consumer seems strong right now, but higher prices and less government support will weigh on the outlook for the rest of the year.  Now that unemployment benefits have expired for millions of Americans, Wall Street will look to see if hiring improves quickly.  If employers continue to struggle to fill vacancies, the Fed may have to abandon their goal of substantial progress in the labor market.  If employers concede and raise wages that will also support the removal of support, which means the Treasury yield curve should continue to steepen.     

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