US Retail Sales edges 0.2% higher in November, below Street estimates

Sales in eight out of thirteen groups surge, led by online retail even as the weekly jobless claims spike

US retail sales edged 0.2% higher in November, lower than the estimated 0.5% increase, amid a slowdown in ex-autos, which rose by a modest 0.1%, sharply below consensus estimates of 0.4%. The numbers, released in the mid of December were accompanied by an upward adjustment in the October retail sales– up to 0.4% versus the 0.3% reported earlier. Retail sales ex-autos for October remained unchanged.

Slower retail sales are not a good sign for the economy as softer consumer spending, which makes up for two-thirds of the US GDP, may cause an inventory build-up in companies, and continued weakness may lead to a cut in the fourth quarter economic forecasts.

Within retail sales, eight of the 13 groups showed an increase, with notable gains in online retailers, auto, electronics, and appliance stores. On the other hand, the classes which dragged the numbers down were primarily restaurants, health, and personal care stores. Despite the slow-down in these categories, there is hope that retail sales will continue to propel growth in the US economy in Q4.

The softer retail sales growth figures followed the spike in the weekly jobless claims – which rose to 252,000 from 203,000 just a week earlier, also to 7-month lows. The volatility in the jobless claims is seen as a consequence of a delayed Thanksgiving holiday this year that might have thrown off the models. It is also surprising that the jobless rate surged after a resilient month when the number of unemployed fell to 3.5%, the lowest in about 50 years.

The consumer price index, too, rose by 0.3% after a 0.4% increase last month. This spike has caused the cost of living over the previous 12 months to surge by 2.1%, which is the highest since November 2018. On the contrary, gasoline prices cooled off a bit in November, but not enough going by historical trends. That apart, the cost of rent, medical care, food, clothes, education, and used vehicles also moved up. Despite the uptick in consumer prices, the inflation is still not high by historical standards and not enough to get the Fed to act. The Fed has an inflation target of 2% but is prepared to let inflation hover above its mark after years of undershooting its goal. Its preferred inflation gauge, the PCE rose by just 1.3% in the 12 months ending October. Besides, PPI (Producer Price Index) was flat in November, which meant that the wholesale cost of goods and services was mostly unchanged for the month and the previous 12-month period, after climbing by just 1.1%, which is the slowest pace for over 3- years. Within the low PPI number for November, the cost of services went down by 0.3%, although an increase in the cost of chicken, eggs and gasoline thwarted the broad decline. The trend in the cost of partly finished goods also showed that prices are not increasing much.

Not surprisingly, in the other notable event for the week, the FOMC monetary policy committee left interest rates unchanged in the last meeting for the year. The 12-member committee was unanimous in its decision to hold rates in the current range of 1.5% to 1.75% till the end of 2020, which means borrowing costs will remain unchanged through all of next year. According to policymakers, the three cuts preceding the current policy decision were enough to propel the economy hurt due to the ongoing trade war with China. The record low unemployment, healthy company earnings and robust economic growth projections are ample proof offered by the committee that further action from a monetary standpoint would not be necessary.

US productivity was revised to have declined by 0.2% in Q3 versus an earlier reading of -0.3%. Despite the slight upward revision, the negative number was the first decline recorded since 2015 and signals that the investment climate remains weak in the backdrop of the US-China trade war. Companies have held back business investments as disputes with China have made it harder for companies to plan their strategies and have hurt the export markets. Within the number, the goods and services that companies produce were revised higher from 2.1% to 2.3%, and the hours worked raised by ten bps, from 2.4%. Productivity is the difference between these two measures. Likewise, efficiency in the manufacturing business expanded by 0.1%, revised higher from the earlier reading of a 0.1% decline. The slowdown in productivity is likely to continue until the resolution of the ongoing Sino-US trade dispute, and businesses are more confident about their spending plans.

Some more November data is due over the next few weeks in December, with housing starts, building permits, industrial production, core inflation, and consumer spending. Besides, some other early December data points, such as the PMI- manufacturing/services and the consumer sentiment index, are also likely to be announced and should provide a good indication on the health of the economy as we head into 2020.