January Retail Sales and Weekly Jobless Claims
Economics in a nutshell: “January consumer spending has started off slowly, though with the strong job gains, that is not expected to last.”
INDICATOR: January Retail Sales and Weekly Jobless Claims
KEY DATA: Sales: -0.8%; Excluding Gasoline: 0%; Vehicles: -1%/ Claims: 304,000 (+25,000)
IN A NUTSHELL: "January consumer spending has started off slowly, though with the strong job gains, that is not expected to last."
WHAT IT MEANS: Are people ready to use their new found bounty from lower gasoline prices and more jobs to hit the stores hard? Maybe not just yet. The first reading on 2015 consumer spending was not as strong as many hoped. Indeed, retail sales fell sharply in January. However, these data are not adjusted for price changes. Just removing gasoline from the report shows that demand was flat. Indeed, prices fell at twice the pace that sales declined, so it looks like drivers were doing their thing last month and saving money as well. The drop in vehicle purchases was expected, but it is hard to worry much about that. Sales in January were robust and the industry is quite buoyant about the future. There was also a large decline in apparel purchases. It is unclear whether that was price or demand driven, so we will have to wait for the consumption report, which adjusts for prices, comes in. On the positive side, it was nice to see a rise in electronics sales and the snowstorms helped drive rising demand at the Lowes of the world. Restaurants are doing well and we continue to buy online. In other words, the report was a lot more mixed than the headline indicates and once prices are taken into account, we are likely to see that sales were actually up.
The weekly jobless claims are behaving as if they are on a seesaw. One week they jump, the next they collapse and then they rise again. Last week, they ballooned. The more "stable" four-week moving average is still at a level that points to strong job gains. In addition, the DiceHiring measure of the length of time to fill a job remained at one of the highest levels in its fourteen-year history. This indicates that firms are having a tough time filling positions.
MARKETS AND FED POLICY IMPLICATIONS: Consumer confidence is really high and while part of the reason may be the low gasoline prices - which recently crept back up - a lot has to do with the stronger job market. How long it takes for rising expectations and the extra money from cheaper gasoline to increase household spending is unclear, but it is going to happen. It is also possible that some spending is shifting into services, which just so happens to make up nearly two-thirds of consumption. This component has been lagging and if people are spending on things other than goods, that is just fine with me. Therefore, I suggest we simply look at today's retail sales numbers with confusion and wait for the more detailed consumption data before we make any assumption about household behavior. That is what the Fed will do and what investors should do, though for the markets, it is usually the headline that gets the first and largest reaction.
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