By Joyce Yu
Philadelphia, PA–US stocks drifted higher Friday morning as U.S. retail sales jumped in September while core inflation missed estimates.
Retail sales soared last month by the most in more than two years as motor vehicles lost to hurricanes were quickly replaced and higher prices lifted receipts at gasoline stations, according to a report released by the Commerce Department. Purchases at car dealers rose 3.6%, the largest gain since March 2015.
Excluding motor vehicles and gasoline, September sales increased at a more moderate rate of 0.5%. While analysts expect hurricane-related distortions will continue for several months, underlying demand is expected to keep growing. Steady hiring and limited inflation are helping to sustain household spending which is the biggest part of the economy.
Also released this morning includes September inflation report which shows U.S. core inflation – the figure that excludes food and fuel – rose 0.1% month-on-month or up 1.7% year-on-year. This was below estimates for the sixth time in seven months.
While economists expected an overall pick-up in price gains in the aftermath of Hurricane Harvey, the reality seems to suggest any broader acceleration in U.S. inflation may need more time to gain traction.
The latest data on inflation, a key consideration in Fed’s policy makings, could give some central banks pause as they debate whether to raise interest rates one more time this year.
“Energy clearly played a part but overall pressures are still not fast enough to produce a pace of annual inflation that’d suggest we’re that much closer to the Fed’s objective,” said Sam Bullard, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina.
Earning season begins this week with JPMorgan Chase and Citigroup both beating analyst expectations with their earnings yesterday. But U.S. stocks backed away from record highs on Thursday. The Dow Jones industrial average shed 0.1%, while the S&P 500 and the Nasdaq fell by 0.2%.
Bank of America, PNC and Wells Fargo will release their quarterly results today. Wells Fargo, while facing bank’s account fraud scandal, is expected to report healthy profits. Its share has remained flat even as its competitors’ shares have posted double digits gains this year. For instance, Bank of America, where shares topped $26 last week for the first time since the financial crisis.
“We’re seeing positive economic news even in the midst of so called geopolitical risk, I think investors are generally more optimistic right now,” Craig Erlam, senior market analyst at OANDA, told the Reuters, referring to strong corporate earnings.
“Earnings in the second quarter were very positive, and looking beyond the impact of hurricanes, it seems like there’s improved fundamentals in the U.S. and Europe.”
