This week, a lot of interesting economic data was published. Will it affect the decision taken today at the FOMC meeting?

Let’s start with the August retail sales, probably the most important report released this week. Retail sales rose 0.2 percent last month, less than consensus (0.3 percent) and less than in July (0.7 percent). They were again driven by a surge in motor vehicles (rise by 0.7 percent), so excluding autos, there were generally weak. However, not weak enough to sway the Fed during today’s meeting.

But the latest CPI report may be theoretically an excuse to postpone the increase. The Consumer Price Index decreased 0.1 percent in August month-to-month, mainly because of a sharp drop in gasoline prices, and rose only 0.2 percent on an annual basis. The low level of inflation could be used as an argument against hiking interest rates in September. On the other hand, core consumer prices, excluding food and energy, rose 1.8 percent over the past year (only 0.1 percent monthly) and real hourly wages jumped 0.5 percent. Thus, the Fed could interpret inflation data in both ways. Welcome to the monetary oracle.

Regarding other interesting data, the Empire State Manufacturing Index remained very weak in September, increasing from a negative 14.9 percent in August to a negative 14.7 percent. Importantly, new orders come at a negative 12.9 percent. What is crucial here is that manufacturing was weak in August not only in New York State, but in the whole country. According to the Federal Reserve, industrial production decreased 0.4 percent in August after increasing 0.9 percent in July. The decline was caused mainly by a 6.4 percent drop in motor vehicles and parts, the biggest fall since April 2011. Is it the beginning of a huge auto slowdown? (And capacity utilization for the industrial sector fell 0.4 percentage point in August to 77.6 percent, a rate that is 2.5 percentage points below its 1972-2014 average). Following the above reports, the Federal Reserve of Atlanta updated its GDPNow Model, which forecasts 1.5 percent GDP growth in the third quarter. Not a very impressive number.

The take-home message is that the recent U.S. economic data is not very optimistic, however, it is unlikely to impact significantly today’s decision at the FOMC meeting. It would not be too wise to base the decision whether to hike interest rates for the first time in nine years on the data from this week. Therefore, the September move is still on the table. As we wrote yesterday, although most investors consider the possible hike as negative for gold, it perhaps would be better for the shiny metal if the Fed just raised rates right now and got it over with (at least in the medium and long term).

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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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