Thursday, February 15, 2024

Slow retail sales, manufacturing makes Wall Street smile.

After all of last week’s panic over inflation coming in 0.1% above “expert expectations” (something I find to be an absurd overreaction), we got a report today that makes me have a more legitimate concern. And that’s the indication that American consumers didn’t spend as much to start 2024.
Spending at US retailers tumbled much more than expected in January as cold weather across the United States kept shoppers at home after a robust holiday spending season.

Retail sales, which captures spending on all goods and food services, fell 0.8% in January, the Commerce Department reported Thursday, breaking a two-month streak of increases. That was even lower than the downwardly revised 0.4% increase in December, and well below economists’ expectations of a 0.1% decline, according to FactSet. The figures are adjusted for seasonal swings but not inflation.

Spending declined across various categories last month, including at gas stations and home improvement stores, likely due to the cold weather, falling 1.7% and 4.1%, respectively. Online sales contracted 0.8%.
That’s going to be the key question is this report – was spending held back due to the one brutal stretch of cold we’ve seen this winter? Or is it a sign that Americans are saving more and waiting to see how things develop in what will likely be a tense year for many?

In looking at the individual numbers, I will note that Americans did keep spending at both grocery stores (up 0.6%) and bars and restaurants (+0.7%). And a 0.8% decline from the online-driven Non-Store Retailers came the month after a 1.4% increase in December, so that could just be a post-Holiday breather.

However, another economic report that hit today didn’t help.

Production at U.S. factories unexpectedly fell in January, weighed down by harsh winter weather.

Manufacturing output dropped 0.5% last month after an unrevised 0.1% gain the prior month, the Federal Reserve said on Thursday. The Fed attributed the decline to "winter weather."

Economists polled by Reuters had forecast factory output would be unchanged. Production at factories fell 0.9% on a year-on-year basis in January.
Not great there either, and it makes February’s data all the more key to make sure we’re staying on an overall growth track.

Naturally, Wall Street loved this news.

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U.S. stock indexes finished higher on Thursday as Wall Street attempted to recover from a steep selloff earlier this week, with January's retail-sales report — which dropped more than forecast — bolstering hopes that the Federal Reserve will begin cutting interest rates in the coming months.
It's amazing how these people overreacted to an inflation rate that is still running around a 2% annual rate over the last 4 months. Things are no different than they were a couple of weeks ago on the inflation front (as in “it’s not causing economic problems”), and our real emphasis should be to keep up consumer and business demand.

The demand part is being endangered by the combination of higher interest rates and higher amounts of debt, and you would hope the Central Bankers at the Fed recognize this reality, and start to give some relief to borrowers while lowering the cost of mortgages and increasing movement in that sector. With several corporations announcing profit-hoarding layoffs in early 2024, chasing a long-dead inflation ghost might be the one way these annoyances in a growing economy become serious headwinds that make recession a possibility.

And oh yeah, don’t forget that the Fed cut rates from 2-2.25% in 2019 at the demands of President Trump when the economy wasn’t much different vs where it is today. So you would hope they’d do the same when the Fed Funds rates are 3% higher than that in 2024. It’s only fair, unless they’re rooting for Trump in November, and why would they want that?
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