Evidence of #ConsumerSlowing Grows... Will the Fed Ignore and Hike Anyway?

Takeaway: The outlook for retailers and the manufacturing sector isn’t getting any brighter.

The consumer spending slowdown strikes again.

Evidence of #ConsumerSlowing Grows... Will the Fed Ignore and Hike Anyway? - consumer spent

Department store chain Dillard’s (DDS) opened down almost 8% after reporting declining profits and lower than expected sales. Peers like Macy’s (M), Nordstrom (JWN), and Kohl’s (KSS) have all seen their stocks clobbered of late, as shoppers were loath to open their purse strings. The stocks have lost between 6% and 24% in the past week after Friday’s retail sales data came in significantly lower than expectations.

Evidence of #ConsumerSlowing Grows... Will the Fed Ignore and Hike Anyway? - retailers

The outlook isn’t getting any brighter either. Retail inventories continue to build, which may force companies to take heavy-handed discounts into the holiday season. The latest data from the Census Bureau puts the inventory to sales ratio at U.S. retailers at 1.38, the highest reading for that month since 2001.

(Editor's Note: In July, our Macro team called the #ConsumerSlowing theme, while Retail analyst Brian McGough recently reiterated short calls on both Kohl's and Tiffany's (TIF). For more information, ping sales@hedgeye.com.)   

Here’s an excerpt from today’s Early Look written by Hedgeye CEO Keith McCullough: 

Since US Retailers like Macy’s (M), Nordstrom’s (JWN), and Kohl’s (KSS) had been crashing coming into this #LateCycle consumption data slowing, it was quite bearish to see both those stocks and the US Retail (XRT) sector hit new lows on the “news.”

 

Evidence of #ConsumerSlowing Grows... Will the Fed Ignore and Hike Anyway? - dillards down

Yet more evidence of the slowdown? Take a look at the U.S. shipping industry. During September and October, imports to key U.S. seaports in New York, L.A. and Long Beach, California — which cumulatively handle 54% of container volumes — fell for the first time in a decade.

For the record, the fall months are usually peak season for the shipping industry. But surprise! The Wall Street Journal reports that retail inventories were a chief concern for the recent shipping weakness.

Evidence of #ConsumerSlowing Grows... Will the Fed Ignore and Hike Anyway? - seaports

To be sure, U.S. manufacturers aren’t exactly signaling strength either. Today’s Empire State Manufacturing index, which the New York Federal Reserve uses to track the state’s business activity, contracted yet again and missed already dour expectations.

The reading came in at -10.74 with business conditions worsening for the fourth straight month, while the six month outlook was flat and zero sign of any labor market improvement.

Question: Does any of this change consensus' certainty of a December rate hike?

It should. 

Look no further than New York Fed head Bill Dudley. He has been sounding increasingly cautious of late. This, after sounding much more optimistic and calling December a “live possibility” at the beginning of the month.

Evidence of #ConsumerSlowing Grows... Will the Fed Ignore and Hike Anyway? - dudley 22