Tags: economy | growth | retail sales | industrial output

Retail Sales, Industrial Output Data Point to Slowing Growth

Image: Retail Sales, Industrial Output Data Point to Slowing Growth

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Wednesday, 14 Dec 2016 12:04 PM

U.S. retail sales barely rose in November and industrial production recorded its biggest drop in eight months, suggesting some loss of momentum in economic growth in the fourth quarter.

The weak retail sales and industrial output readings reported on Wednesday, however, were unlikely to deter the Federal Reserve from raising interest rates later in the day, against the backdrop of steadily rising inflation and a tightening labor market.

The rate hike expectations were reinforced by other data showing producer prices notching their largest increase in five months in November amid a jump in the cost of services. The moderation in retail sales came after two straight months of strong gains. With incomes rising and household wealth at record highs, the cool-off in retail sales is likely to be temporary.

"Today's report does little to change the multi-month trend of strong consumption growth," said Andrew Hollenhorst, an economist at Citigroup in New York. "The report, while disappointing, is unlikely to affect Fed officials' policy decision at today's meeting."

Retail sales edged up 0.1 percent last month after rising 0.6 percent in October, the Commerce Department said. Sales were up 3.8 percent from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales also nudged up 0.1 percent last month after gaining 0.6 percent in October.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists had forecast overall retail sales increasing 0.3 percent and core sales also gaining 0.3 percent last month.

In another report, the Fed said industrial production fell 0.4 percent last month, pulled down by a 4.4 percent drop in utilities output as warmer-than-normal temperatures cut demand for heating. The drop in industrial production was the largest since March.

Manufacturing production slipped 0.1 percent, but mining output surged 1.1 percent as the drag from last year's collapse in oil prices fades.

The dollar fell against a basket of currencies, while prices for longer-dated U.S. government bonds rose ahead of the Fed interest rate decision. U.S. stocks were trading lower.

The U.S. central bank hiked its overnight benchmark interest rate last December for the first time in nearly a decade.

 

INFLATION RISING

Prospects for another increase in borrowing costs on Wednesday were supported by a third report from the Labor Department, which showed its producer price index for final demand increased 0.4 percent last month, the largest gain since June, after being unchanged in October.

In the 12 months through October, the PPI rose 1.3 percent, the biggest gain since November 2014. The PPI rose 0.8 percent in the 12 months through October.

A 0.5 percent increase in the cost of services accounted for more than 80 percent of the rise in the final demand PPI last month. The increase, which followed a 0.3 percent decline in October, was the largest since January.

With producer prices pushing higher, overall inflation is expected to steadily move toward the Fed's 2 percent target.

Last month's softer-than-expected retail sales numbers suggested a slowdown in consumer spending in the fourth quarter, which could see economists trim their GDP forecasts for the period. Fourth-quarter GDP growth forecasts could also be dented by another report from the Commerce Department showing business inventories recording their biggest drop in 11 months in October.

Still, consumers should continue to support the economy in the fourth quarter. The Atlanta Fed is forecasting GDP rising at a 2.6 percent annualized rate in the fourth quarter. The economy grew at a 3.2 percent pace in the third quarter.

Last month, auto sales fell 0.5 percent, the largest decline since March, after increasing 0.5 percent in October. Sales at building material stores rose 0.3 percent.

Receipts at clothing stores were flat, suggesting a weak start to the holiday shopping season. Department stores like Macy's and Kohl's are facing intense competition from online retailers such as Amazon, which have snatched a large chunk of the market share.

Sales at online retailers gained 0.1 percent last month after surging 1.4 percent in October. Receipts at restaurants and bars increased 0.8 percent, while sales at sporting goods and hobby stores fell 1.0 percent. Receipts at service stations gained 0.3 percent after jumping 2.5 percent in October.

 

© 2017 Thomson/Reuters. All rights reserved.

 
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U.S. retail sales barely rose in November and industrial production recorded its biggest drop in eight months, suggesting some loss of momentum in economic growth in the fourth quarter.
economy, growth, retail sales, industrial output
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2016-04-14
Wednesday, 14 Dec 2016 12:04 PM
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