Tags: retail | sales | economic | growth

Dismal Retail Sales Foreshadow Weak 4Q Growth

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Thursday, 14 February 2019 02:39 PM Current | Bio | Archive

INDICATOR: December Retail Sales, January Producer Prices and Weekly Jobless Claims

KEY DATA: Sales: -1.2%; Excluding Vehicles: -1.8%; Excluding Gasoline: -0.9%/ PPI: -0.1%; Goods Ex-Food and Energy: +0.3%/ Claims: +4,000

IN A NUTSHELL: “The disappointing retails sales numbers point to a less than stellar final quarter of growth.”

WHAT IT MEANS: It looks like the consumer took a pass at the end of 2018. Retail sales were down sharply in December. The monthly percentage change was the largest in over nine years. Even when you exclude gasoline (whose prices were down), the drop in household purchases was much greater than expected. Indeed, the negative numbers in the report outweighed the positives by ten to two. Only vehicle sales and purchases of building materials and garden equipment were up. The two sectors we could always count on to show gains, Internet and restaurants, dropped. So, the stories of a solid holiday shopping season may have been overblown. For the year, sales rose 5% and adjusting for inflation, they were up 2.5%. That is pretty much the average over the past five years, which is disappointing given the tax cuts. (Note: The December report was delayed due to the shutdown. The January release has not yet been scheduled.)

Wholesale prices remain pretty much contained. The Producer Price Index eased back slightly in January, though when food and energy were excluded from the goods component, costs were up solidly. Over the year, most measures of business expenses have been rising at a moderate pace that has decelerated consistently for the past six months. Services costs are rising somewhat faster than goods prices, but they too are not soaring. Looking into the pipeline, the costs of intermediate goods are largely flat while services are rising moderately. In other words, business services expenses should continue to increase fairly solidly but goods costs should remain contained.

Jobless claims rose a little last week and the four-week average has been trending upward. That said, the volatility from the government partial shutdown is likely still in the numbers as it is unclear what is happening with contractors. Even with the recent rise, claims remain near historic lows.

MARKETS AND FED POLICY IMPLICATIONS: We’ve gotten some odd, very volatile data lately and the retail sales numbers clearly fit that description. Given all the glowing reports on Internet sales, it looked like the holiday season was really good. Today’s release raises questions about that. As these numbers, or at least a subset, wind up in the GDP report, economists may start marking down their guestimates of fourth quarter growth. I still think it will come in around 2.5%, but the risks are to the downside. The government shutdown and brutally cold weather may have restrained spending in January as well, so the first quarter could be starting off on the wrong foot. The backlog of data due to the shutdown has come at a bad time for the Fed. A moderation of growth has been expected as the tax cut impacts fade, but how much of a slowdown is now unclear. The labor market is strong but if consumers are holding back, that is not good news for growth. With businesses not investing nearly as much as hoped for and with the government budget deficit skyrocketing, there is little reason to expect growth to accelerate. It will be another month before a normal pattern of data releases returns, so all the Fed members can do is watch and wait. And that uncertainty is likely to cause even greater volatility in the equity markets. And the last thing we need is a break down in the trade negotiations, which have put investors truly on edge. The pressure is on to come up with something, anything, when it comes to trade and that may be changing the negotiating dynamic. Since the news out of the discussions changes almost daily, the best we can do is follow the Fed’s lead and watch and wait.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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JoelNaroff
The backlog of data due to the shutdown has come at a bad time for the Fed. A moderation of growth has been expected as the tax cut impacts fade, but how much of a slowdown is now unclear. The labor market is strong but if consumers are holding back, that is not good news for growth.
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2019-39-14
Thursday, 14 February 2019 02:39 PM
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