Retail Sales Drop 1.2%

Also: Consumer sentiment fell more than expected, and producer prices met forecasts

Retail sales fell 1.2% in September, in line with the consensus estimates. Excluding cars, sales were up 0.1%, also in line with market expectations of a 0.2% rise.

The data from the Commerce Dept. were better than the chain-store reports yesterday would suggest. Car dealer sales fell 4.8%, clothing was down 0.9%, and department stores declined 0.6%. Building material sales were up 1.8%, health and personal care rose 1.5%, and sporting goods and hobby were up 1.5%. The pattern suggests a strong impact of weather on sales.

Overall, the report should have little impact on the market since it was close to expectations. The weak car sales came off the August peak, and remain up 7.5% on the year. Total retail sales are up 5.8% from the extreme weakness of last September.

Consumer Sentiment Plunges

The University of Michigan reported that preliminary October sentiment plunged to 80.4 from 86.1 in September. The consensus was for only a slight drop to 85.6. Both current conditions and expectations were down sharply.

The index of current conditions fell to 92.9 from 95.8, while the expectations components dropped to 72.4 from 79.9. Generally, the current conditions report has held up much better than expectations.

The report adds to worries that the consumer is slowing down, which could make the fourth quarter weaker than expected and increases the risk of a double-dip recession. It gives the Federal Reserve more reason to loosen rates, although we at S&P still expect the Fed to resist the urge in November.

PPI Inches Up

Producer prices rose 0.1% in September. Excluding food and energy, the PPI was also 0.1%. The report was exactly in line with expectations.

In the report, energy rose 0.9%, but that was offset by a 0.6% drop in food prices, reflecting the end of the drought. Finished goods prices were down 1.9% from last September. Intermediate goods prices were up 0.5% (0.1% core), and remain down 0.5% on the year. Crude goods were up 0.6%, but down 0.6% excluding food and energy items.

Inflation remains a non-issue, as goods prices are flat, with the core finished goods prices down 0.1% from last September.

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