RBC ECONOMICS RESEARCH - DAILY ECONOMIC UPDATE – January 14, 2010
U.S. December retail sales unexpectedly fell although the gain in November was revised upwards
Retail spending in December unexpectedly fell by 0.3% in the month suggesting a weak finish to the Christmas shopping period. Market expectations had been for a 0.5% gain; however, the disappointment with the decline was tempered by the fact that sales in November were revised up to a robust 1.8% from the previously estimated 1.3%. This suggested unsustainably strong momentum going into the final weeks of holiday spending.
The unexpected weakness was in part the result of the motor vehicle and parts component dropping 0.8% in the month after a 1.2% gain in November. The earlier reported unit auto sales data suggested that activity continued to rise in December although at a more moderate rate compared to November. (The missing sales activity may reflect business purchases of autos that will be captured in business investment data.)
U.S. December retail sales unexpectedly fell although the gain in November was revised upwards
Retail spending in December unexpectedly fell by 0.3% in the month suggesting a weak finish to the Christmas shopping period. Market expectations had been for a 0.5% gain; however, the disappointment with the decline was tempered by the fact that sales in November were revised up to a robust 1.8% from the previously estimated 1.3%. This suggested unsustainably strong momentum going into the final weeks of holiday spending.
The unexpected weakness was in part the result of the motor vehicle and parts component dropping 0.8% in the month after a 1.2% gain in November. The earlier reported unit auto sales data suggested that activity continued to rise in December although at a more moderate rate compared to November. (The missing sales activity may reflect business purchases of autos that will be captured in business investment data.)
Sales growth at service stations slowed to 1.0% from 9.6% in November though such had been flagged by indications of flat gasoline prices in December. More unexpected was sales excluding autos and gasoline dropped 0.3% compared to expectations of a 0.2%. The decline, however, followed a much larger and upwardly revised 1.0% surge in November that had previously been reported as up 0.6%.
The drop in December retail sales was disappointing although it was tempered by the upward revision to November, which provided almost a full offset. Thus today’s data remain consistent with our forecast that consumer spending, on a volumes basis, continued to rise in the fourth-quarter 2009 by an annualized 1.7%. This is slower than the 2.8% rise in third-quarter 2009; however, that quarter had been helped by the ‘cash-for-clunkers’ auto rebates. There had been some concern that the strength in the third quarter was just advancing activity from subsequent quarters. To some extent that has happened because consumer spending on durables is expected to drop around 2% in the fourth quarter after the 20.4% surge in the third quarter; however, this payback is relatively muted and is being offset by strengthening growth in consumer spending for non-durables and services.
The other upside surprise in the fourth-quarter data to date has been the relative strength in inventories, which could help double fourth-quarter GDP growth relative to the 2.2% annualized gain in the third quarter. This pace of growth, if sustained, would start to put greater downward pressure on the unemployment rate. With about one-half of the Q4 gain expected to come from inventories, however, the sustainability of above-trend growth is doubtful. Our expectation of a return to more moderate growth in 2010 implies the Fed keeping Fed funds steady in the current range of 0% to 0.25% until the fourth-quarter 2010.
Jobless claims for the week ending January 9, 2010 rose slightly to 444,000 from 433,000 the previous week (downwardly revised from 434,000). Improving labour market conditions are more evident looking at the four-week moving average for claims, which dropped to 441,000 from 450,000 over the same period. For the week ending January 2, 2010, continuing claims dropped to 4,596,000 from 4,807,000 the previous week.
Paul Ferley, Assistant Chief Economist, RBC Economics
Thanks
Paul Ink
The drop in December retail sales was disappointing although it was tempered by the upward revision to November, which provided almost a full offset. Thus today’s data remain consistent with our forecast that consumer spending, on a volumes basis, continued to rise in the fourth-quarter 2009 by an annualized 1.7%. This is slower than the 2.8% rise in third-quarter 2009; however, that quarter had been helped by the ‘cash-for-clunkers’ auto rebates. There had been some concern that the strength in the third quarter was just advancing activity from subsequent quarters. To some extent that has happened because consumer spending on durables is expected to drop around 2% in the fourth quarter after the 20.4% surge in the third quarter; however, this payback is relatively muted and is being offset by strengthening growth in consumer spending for non-durables and services.
The other upside surprise in the fourth-quarter data to date has been the relative strength in inventories, which could help double fourth-quarter GDP growth relative to the 2.2% annualized gain in the third quarter. This pace of growth, if sustained, would start to put greater downward pressure on the unemployment rate. With about one-half of the Q4 gain expected to come from inventories, however, the sustainability of above-trend growth is doubtful. Our expectation of a return to more moderate growth in 2010 implies the Fed keeping Fed funds steady in the current range of 0% to 0.25% until the fourth-quarter 2010.
Jobless claims for the week ending January 9, 2010 rose slightly to 444,000 from 433,000 the previous week (downwardly revised from 434,000). Improving labour market conditions are more evident looking at the four-week moving average for claims, which dropped to 441,000 from 450,000 over the same period. For the week ending January 2, 2010, continuing claims dropped to 4,596,000 from 4,807,000 the previous week.
Paul Ferley, Assistant Chief Economist, RBC Economics
Thanks
Paul Ink
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