INDICATOR: November Retail Sales, Import Prices and Weekly Jobless Claims
KEY DATA: Sales: +0.7%; Excluding Vehicles: +0.5%; Gasoline: -0.8%/Non-Fuel Import Prices: -0.2%; Fuel: -6.7%/Jobless Claims: 294,000 (down 3,000)
IN A NUTSHELL: "A firm labor market is helping power stronger retail sales and it looks like we are having a very, merry holiday shopping season."
WHAT IT MEANS: Apparently, the reports of the consumers' demise are premature. The National Retail Federation was downbeat about Black Friday demand, but with sales running a week or two and Cyber Monday lasting a week, it appears households are shopping 'till they are at least tired. Retail sales soared in November and it wasn't just the jump in vehicle purchases that propelled revenues forward. Excluding vehicles, sales were still strong even when gasoline was included. Declining prices led to a sharp drop in fuel purchases and excluding that portion of sales makes the rise even greater. Indeed, the increases were essentially all across the retail landscape. People even went to furniture and department stores, two areas that had been lagging.
On the inflation front, the Fed has nothing to fear, unless they are hoping for higher inflation, which the members are. Import prices fell in November and the declines were also across the board. There was even some relief on the food side, which had been running counter to most other import prices. A strong dollar is probably helping foreign companies grab for market share by lowering prices.
As for the labor market, another number, another indication that the November jobs report, while high, was not a total aberration. Jobless claims continue to moderate and there is little reason to think that the December payroll increases will be weak. The levels are consistent with job gains in the 250,000 range and a steady fall in the unemployment rate. Only the return of frustrated workers can keep the unemployment rate from coming down consistently.
MARKETS AND FED POLICY IMPLICATIONS: It seems to be all coming together. The labor market is continuing to improve, falling gasoline prices are adding to spendable income and households seem to be using that money to buy lots of things. The holiday shopping season appears to be off to a very good start but we still have a couple of weeks to go. Bad weather may create some ebbs and flows in the sales but I expect demand to be strong. Last month I suggested that the holiday season could show upwards of a 5% rise and I am buoyed by the latest reports. If we get anything close to that, we could have another quarter of GDP growth at or above 3.5%, confirming that the economy has shifted gears. Next week the FOMC meets and it will be interesting to see how the members view the economy. I think it is time to drop "considerable time" from the statement but whether that happens this month or next, it is coming. The real issue is the first rate hike. I think in spring the Committee will set the range around 25 basis points. While that will not be a large move, it will signal the start of a long but steady process of rate hikes.