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Bearish Focus


Updated Barclays/Bbg Extension Estimates for US


Late Session Selling

     WASHINGTON (MNI) - The US retail sales report for October will be released
Thursday and the outlook is for a 0.5% rise for overall sales and a 0.5% rise
ex-auto, based on an MNI survey of analysts. However, market participants see a
0.3% gain for overall sales, likely due to a less optimistic view of gasoline
station sales. Stronger gasoline prices should offset an expected flat to down
reading for vehicle sales.
     Also being released this week is October report on industrial production
and capacity utilization on Friday. Analysts are calling for a 0.1% gain in
industrial production and expect capacity utilization to be unchanged from the
78.1% level seen in the previous two months.
     Ahead of the releases, we outline five themes for particular attention.
     This month, analysts are expecting retail sales to rise by 0.5%. Over the
last ten years, they have shown a clear tendency to underestimate the headline
value in October, having done so seven times by an average of 0.31pp. Their
overestimates, totaling three times in the last ten years average 0.37pp. This
implies that if this month's headline number comes in different than expected,
there is most likely to be an upside surprise. When it comes to ex-auto sales in
October, analysts have a fairly even split between overestimates and
underestimates. They have overestimated five times by an average of 0.38pp and
underestimated four times by an average of 0.25pp, suggesting that an
underestimate would be smaller on average. Still, there is no clear risk for
their estimate of a 0.5% gain in ex-auto sales for this month.
     While analysts are anticipating a solid 0.5% rise in retail sales in
October, markets are expecting a more modest 0.3% increase. Over the last year,
markets have regularly missed to the high side, overestimating the headline
value eight times by an average of 0.50pp. Analysts, though they have
overestimated half as often, have a similar average miss of 0.45pp. Unlike
markets, analysts have not shown a clear tendency to miss in either direction.
Based on their history, it would appear as though markets are likely to
overestimate. Since they are already expecting a softer gain than analysts, it
could mean a downside risk to analysts' forecast.
     Early Wednesday, the BLS released the monthly Consumer Price Index report
for October, which saw gasoline prices post a 3.0% month-over-month increase.
Since the CPI for gasoline is a close correlate of gas station retail sales, we
can expect a high degree of upside risk for gas station retail sales in October.
This is possibly due to effects from Hurricane Michael, with evacuees increasing
traffic at gas stations. Adding weight to the prospect of a substantial increase
in October sales is the fact that both the gasoline CPI and gas station sales
decreased in September, meaning an upward rebound is possible.
     In the last ten October reports, analysts have consistently overestimated
industrial production. They have overestimated seven times by an average of
0.29pp, adding some downside risk to analysts' already modest 0.1% forecast.
Though they have underestimated only three times in the last ten years, the
margin is significantly wider due to large outlier in October 2008. Analysts
expect capacity utilization to hold steady at 78.1% for a third straight month.
However, they do not have a very accurate record for estimating capacity
utilization, with just one correct estimate in the last ten October reports.
Looking at the remaining six overestimates and three underestimates, there is a
clear downside risk for capacity utilization as well.
     As discussed in a recent MNI Analysis, motor vehicles and parts production
show increased volatility when hurricanes strike and are less likely to produce
a gain in a hurricane month. As such, a decrease is much more likely for
October, compared with other months. However, because Hurricane Michael hit in
the beginning of October, it is possible that production gains late in the month
may compensate for losses incurred due to the storm.
--MNI Washington Bureau; +1 (973) 494-2611; email:
--MNI Washington Bureau; +1 202-371-2121; email:
--MNI Washington Bureau; tel: +1 202-371-2121; email: