Last week’s economic data wasn’t really terrible, but it was disappointing after the surprisingly strong numbers we’ve seen in recent weeks. Both consumer and business showed lower-than-expected gains and largely failed to meet expectations. Although the economy continues to improve and trends remain positive, the stream of positive data took a breather last week.
A look at last week’s news
Retail sales sluggish. The retail sales report gave us a look at whether consumers are spending in line with their confidence levels—and they are not. Released on Wednesday, the report showed that:
- Growth in overall retail sales was down to 0.1 percent in November, much less than the downwardly revised 0.6 percent in October and below expectations for growth of 0.3 percent.
- Core retail sales, excluding autos and gasoline, did slightly better, with growth of 0.2 percent, but still fell short of expectations of 0.4 percent.
This decline in growth may be, at least partially, a giveback from very strong gains in recent months; it could also be attributable to the election. At the same time, the longer-term averages remain healthy, so this month’s weak report bears watching but not worrying about.
Industry also disappoints. Industrial production decreased by 0.4 percent in November, down from an increase of 0.1 percent the prior month and even worse than the expected decline of 0.2 percent. Again, however, continued weakness in utility production, driven by warm weather, was a major reason, rather than something more systemic. Illustrating this point, manufacturing, excluding utilities, actually did better than expected, dropping by only 0.1 percent. Though down from the prior month's upwardly revised gain of 0.3 percent, this was much better than expectations for a decline of 0.4 percent.
Overall, the drop follows two months of solid growth, so combined with positive business surveys, it may well just be a pause in an ongoing recovery.
Consumer prices in line with expectations. As expected, consumer price data showed an increase of 0.2 percent on the month and 1.7 percent on the year, down from 0.4 percent monthly and up from 1.6 percent annually, on base effects as the price of oil continues to rise. Core prices, which exclude energy and food, rose faster, up by 0.2 percent monthly, as expected, and 2.1 percent over the prior year, up from 0.1 percent and 2.1 percent, respectively. This is a well-established trend and should not affect either growth or markets.
Housing offers some good news. The National Association of Home Builders reported a surprise increase in its housing industry survey, from an already strong 63 to 70. Despite that positive sentiment, however, housing starts dropped by more than expected, from 1.323 million, the highest level since mid-2007, to a moderately strong 1.09 million on a partial reversal of October’s very strong increase. Nonetheless, the trend remains positive, with the three-month average close to its highest level since December 2007 and the 12-month average close to the highest level since May 2008.
Fed announces rate increase. The other big economic news last week was the Federal Reserve’s meeting. As expected, the committee decided to increase short-term interest rates by 25 basis points. Notable in both its statement and Janet Yellen's press conference was the Fed’s high level of confidence in the economic recovery and the small but important move upward in the expected path of future growth and rates.
The week ahead
This week, we get another look at the housing industry from the consumer side, with existing home sales reported on Wednesday and new home sales on Friday. Existing home sales are expected to decline slightly from October’s 5.60 million, the highest level since early 2007, to a still strong 5.52 million; new home sales are expected to increase from 563,000 to 575,000.
Business confidence, as expressed in the durable goods orders report released on Thursday, is expected to be less positive. Headline orders are expected to decline from a gain of 4.6 percent to a decrease of 4.7 percent on a big dropoff in aircraft orders. Core orders, excluding transport, are expected to decline from a gain of 0.8 percent to a gain of 0.2 percent.
Finally, and most important, we’ll get a final look at the consumer in the personal income and spending report on Thursday. Personal income growth is expected to drop from 0.6 percent to 0.3 percent, while personal spending growth is expected to increase from 0.3 percent to 0.4 percent.
Have a great week!