INDICATOR: November Retail Sales and Weekly Jobless Claims
KEY DATA: Retail Sales: +0.7%; Excluding Vehicles: +0.4%; Claims: 368,000 (up 68,000)
IN A NUTSHELL: "We may have counted out the consumer too soon as households seem to be willing to spend whatever limited funds they have."
WHAT IT MEANS: Retailers have been singing the blues but maybe they are just off tune. Retail sales were a lot stronger than expected in November and that came on top of a solid October gain. Part of the explanation for the two solid months may have been that Black Friday sales started in October and really picked up steam early in November. In other words, there is no Black Friday, just a couple of months of Black Friday sales. That should have spread the spending over a longer period of time. Thus, December sales may be a little disappointing but the three months leading up to Christmas are probably going to be better than expected. Of course, the bar was set quite low so that is not saying much. Also, vehicle purchases have been robust and while that is great news for the dealers, it is causing consumer credit demand to jump. That means more debt and with refinancings disappearing, that implies rising debt service obligations and less money for other spending. That said, people are still buying just about everything out there including other big-ticket items such as furniture, electronics and appliances. We are eating out again, fixing up our homes and hitting the websites hard.
There was a huge surge in jobless claims last week. My response is big deal. It is hard enough to seasonally adjust these data on a weekly basis but when Thanksgiving comes at the latest date possible, the numbers have to be taken with a dump truck full of salt. Averaging the two weeks together gets us to 334,000 which is not that much above the four-week average, so I am not hugely concerned about this report. If it gets repeated, though, I will be.
MARKETS AND FED POLICY IMPLICATIONS: The solid retail sales reports for both October and November are an indication that the economy continues to build momentum. It may also be a sign that the holiday shopping season is now three months long so we shouldn't get too worried about the ebb and flow of December sales that seems to be the recent pattern. The good news is that the fourth quarter growth rate, when the expected huge inventory swing is excluded, could be quite decent. That would be enough for the Fed to start tapering early next year. The FOMC meets next week and most likely the statement will point to the improving data and indicate the time is getting close to when the Fed can start cutting back on its purchases. But the data are also not so strong that the Fed has to start the process. I think tapering will be announced after either the January or March meetings. I have been saying March for several months and I am sticking to that, probably because I am too obstinate to change my forecast. But also by then, we should have so much good data that those that believe as I do that it is better to do too much rather than too little will good reason to feel comfortable about changing policy.