NAM: Monday Economic Report

  • Retail sales increased 0.2% in November, weaker than expected and possibly impacted by the late Thanksgiving and more compressed holiday shopping season. Spending excluding motor vehicles and gasoline station sales was flat in November. This suggests that consumers felt more hesitant in their purchases. With that said, retail spending has risen a modest 3.3% over the past 12 months.
  • After increasing short-term rates at each of the past three Federal Open Market Committee meetings, the Federal Reserve made no changes to monetary policy at its Dec. 10–11 meeting, as expected. Participants noted that consumer spending and the labor market were bright spots in the economy, but business investment and trade provided drags on growth. Core inflation continues to remain well below the FOMC’s stated target of 2%, which would be consistent with slower growth than desired.
  • Yet, the Federal Reserve feels that its recent moves should help to prolong the economic expansion, and it wants to see if those actions bear fruit as it looks at incoming data. The FOMC is not likely to reduce the federal funds rate again unless it sees signs of further deterioration in the economy.
  • Producer prices for final demand goods rose 0.3% in November, or 1.1% over the past 12 months. Core inflation, which excludes food and energy costs, has grown 1.3% year-over-year, the slowest pace since September 2016 and continuing a deceleration trend for input prices.
  • Consumer prices also increased 0.3% in November, but have risen by more over the past year. Core inflation for consumers has risen 2.3% year-over-year, with notably higher medical care services and shelter expenses, among other categories. Nonetheless, inflation appears to be stable for now and not really a major concern for the Federal Reserve.
  • The National Federation of Independent Business reported that the Small Business Optimism Index rose from 102.4 in October to 104.7 in November. Small business owners generally remain positive in their outlook despite the slowing global economy and ongoing trade uncertainties. Respondents continued to cite the quality of labor as the top “single most important problem.”
  • In a pre-holiday rush, statistical agencies will release a slew of important economic data next week. Highlights include updates on consumer confidence, GDP (second revision), housing starts and permits, industrial production, job openings, personal income and spending and manufacturing surveys from IHS Markit and the Kansas City, New York and Philadelphia Federal Reserve Banks.
  • In particular, manufacturers will be looking for signs of stabilization—and perhaps a pickup—in manufacturing activity, with housing building on recent strength and consumer spending continuing to increase at a modest pace.