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Analysts at Nomura offered a preview of the last key data for the US economy for this week.

Key Quotes:

“Import prices: Despite ongoing trade tensions, import price inflation will likely remain steady in the near term, and we expect steady readings for August import prices. While the US dollar has appreciated against major currencies recently, it will take some time to observe any effects on import prices and such effects are unlikely to be material at the moment. Although aggregate import prices were soft in July with ex-fuel import prices declining for two consecutive months, imported ex-auto consumer goods prices were up 0.3% m-o-m in July after a decline in June. On a y-o-y basis, inflation of imported ex-auto consumer goods prices remained steady in July, up 0.6% y-o-y. Moreover, the first round of tariffs on Chinese goods took effect on 6 July, but import prices for machinery and equipment from China, the main targets of the US tariffs, declined in July. Import price indices exclude import duties. Thus, lower import prices of goods from China could indicate that Chinese exporters tried to absorb higher costs associated with tariffs to keep the final sales prices at competitive levels.

Retail sales: We expect a steady 0.4% m-o-m increase in core (“control”) retail sales in August (Consensus: 0.4%) following a 0.5% gain in July. The ISM non-manufacturing survey indicated healthy activity in the retail sector in August. Moreover, the strong labor market and steady income gains likely remained supportive for retail sales in August. Elsewhere, we expect a rebound in building material sales in August which remained flat in the previous month. Receipts at food services venues likely remained strong following the recent trend. However, WardsAuto’s total light vehicle sales estimates indicated slower sales in August and point to weaker receipts at auto and parts dealers. Excluding autos, we expect a solid 0.5% m-o-m gain in retail sales (Consensus: 0.5%). We forecast 0.4% m-o-m increase in aggregate retail sales (Consensus: 0.4%).

Industrial production: We forecast a 0.4% m-o-m gain in aggregate industrial production (Consensus: 0.3%). The manufacturing sector activity has been improving resiliently over the past year and a half. While there have been increased signs of slowing external growth, strong domestic demand will likely remain supportive for industrial activity expansion. Against this backdrop, we expect a steady 0.3% gain in exauto manufacturing output. Moreover, based on industry forecasts, auto assemblies likely picked up sharply in August after a transitory slowdown in July and should contribute to aggregate industrial output. For the mining sector, we expect a rebound in output considering firm increases in crude oil and gas extraction. However, considering active oil rig counts that plateaued in August, the contribution from mining support activity would be muted.  

Business inventories: Incoming data on inventory spending point to a healthy gain in aggregate business inventories in July. The buildup of inventories was especially strong in the manufacturing and wholesale sectors. Retail inventories also increased at a healthy pace, driven by a decent gain in retail auto inventories. Altogether, we expect a solid contribution from private inventory accumulation to real GDP growth in Q3.

University of Michigan consumer sentiment: Consumer sentiment in the University of Michigan August survey has declined 5.2pp from its recent peak of 101.4 reached in March, in contrast to the Conference Board’s survey which has showed continued improvement. The University of Michigan survey asks respondents whether they are (and will likely be) “financially better or worse off” than in the past five years. As inflation expectations have risen this year, it is possible that respondents in the Michigan survey have discounted recent income growth in real terms, in contrast with the Conference Board’s questions which focus on nominal income growth expectations and labor markets, indicating perhaps more modest consumer spending growth than what the Conference Board survey would suggest. Inflation expectations at the one-year horizon increased 0.1pp to 3.0% while longer-term inflation expectations remained within a steady range, increasing 0.2pp to 2.6% in August.”

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