Rapid increase in retail sales, expectations for lower scorch rate
of The strength of the American consumer That could help take away confidence from the market that the Fed will cut rates this March.
The Ministry of Commerce stated: Retail spending rose at the fastest pace in three months in December. Overall sales rose 0.6%, easily beating Wall Street expectations for a 0.4% increase and double November's already surprisingly strong 0.3% increase. Compared to the previous year, sales he increased by 5.6%.
Retail sales, excluding car dealerships and gas stations, also increased by 0.6%. car sales was up a solid 1.1%, but gas station sales fell, reflecting a 19 cent drop. gasoline prices.
There is no doubt about it holiday shopping It was a big boost. Department store sales rose 3% during the month, while online sales rose 1.5%. Sales in the sector, which includes sporting goods stores, hobby stores and bookstores, rose 0.3%.
The image that emerges is one of a very powerful consumer who is probably influenced by: Continued strength in the labor market. The economy grew in December, adding 216,000 jobs, much more than expected, and the unemployment rate remained extremely low at 3.7%.
End of monodeflation
Importantly, retail sales represent demand for a product. The headline numbers include restaurants and bars, which are part of the service sector, but sales at these locations were flat during the month. The cause of the increase was the commodity part of the economy.
That should be the part of the economy where demand is decreasing. This has led to disinflation throughout much of this year, with prices for some goods actually falling. The surge in retail sales seen in the fourth quarter of this year suggests that: Demand for goods could start to increase inflationary pressures.
Retail sales for the so-called “control group” rose by 0.8%, twice as much as expected, with last month's figure revised upwards by a tenth of a percentage point to 0.5%. This feeds directly into estimates of gross domestic product through the personal consumption expenditure gauge. This larger-than-expected profit in numbers suggests that: Year-end economic growth forecasts will need to be revised upwards.
Maybe the job numbers were correct.
The surge in holiday shopping also suggests that: December employment numbers may not be revised downwards That's about as much as some analysts thought. Throughout last year, many of the surprisingly strong jobs numbers were later subject to downward revisions. And December's numbers were so small that many economists doubted they would be revised down significantly. Federal Reserve President Chris Waller signaled in a meeting with the Brookings Institution on Tuesday that he expects a downward revision to December's jobs report.
Such revisions may continue, but they may be smaller than Wall Street thinks. As people go out to buy goods, retail sales show Companies will be overwhelmed with demand and likely to hire to meet it..
Report on import price also suggests very strong demand. This category is also dominated by merchandise sales. Prices were expected to fall by 0.6%. In fact, it was flat on a monthly basis.
A cargo ship crosses the Suez Canal in Ismailia, Egypt, December 29, 2023. (Fareed Kotb/Anadolu, Getty Images)
recognition that red sea trouble This is unlikely to be resolved anytime soon, raising doubts about further disinflationary pressure from goods. Supply disruptions that occur in a situation of full employment can have a significant impact on inflation. In other words, the closure of the Red Sea shipping lanes There is likely to be upward pressure on commodity prices..
The probability of a decline in sales in March has been significantly lowered.
The market reacted violently to these developments. Two days ago, swap markets were suggesting a 77% chance of a rate cut in March. By noon Wednesday after the release of retail sales. Odds dropped to 52%.
Them Dreaming of a merch cut Maybe I'll finally wake up to reality.
