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Analysts at Nomura suggest that the incoming US data on consumer spending and manufacturing output remain firm, suggesting robust growth in Q3.

Key Quotes

“August core retail sales came in at 0.1% m-o-m, weaker than expected (Nomura & Consensus: 0.4%). However, a July estimate was revised up by 0.3pp to +0.8% and a June estimate was revised up by 0.1pp to 0.0%, still pointing to a solid boost from personal consumption to Q3 GDP growth.”

“Industrial production was up 0.4% m-o-m in August, with a 0.3pp upward revision to +0.4% for the July estimate. Ex-auto manufacturing output remained flat in August, but the July estimate was revised up 0.3pp to a solid 0.5% gain. Considering the details of the report and a positive backward revision, we partly discount the slowdown in ex-auto factory output in August. Put into perspective with other incoming data, the underlying momentum of the industrial sector appears intact despite risk ahead.”

GDP tracking update: While August core retail sales were weaker than expected, upward revisions to July and June estimate months were more than enough to offset the downside surprise. On net, core retail sales data were modestly positive to our tracking estimate of real PCE for Q3 as well as Q2.

In addition, the gain in auto assemblies in August, an input into inventory investment estimation, was mostly in line with our expectations, but the output in previous months was revised down notably. Reduced auto output implies less buildup of real auto inventories in Q3.

Moreover, July business inventory report revised up retail inventories in July but lowered the estimate for June. This revision implies more real inventory drawdown in Q2, which implies modestly more contribution to growth in real changes in inventories in Q3.

Combined with auto assembly data, revisions to retail inventories were net negative for both Q2 and Q3. After rounding, we lowered our tracking estimate for Q3 by 0.1pp to 3.4% q-o-q saar. Our Q2 real GDP tracking estimate remains unchanged at 4.5% q-o-q saar.”

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