Yesterday we wrote about “mixed signals” in recent economic news. Today’s reports add to our concerns, further suggesting a need for caution as lawmakers develop the coming state budget.
Holiday retail sales during 2018 grew a lower-than-expected 2.9 percent over the same period in 2017 to $707.5 billion, the National Retail Federation said today after the Commerce Department released data that had been delayed by nearly a month because of the recent government shutdown.
“All signs during the holidays seemed to show that consumers remained confident about the economy,” NRF President and CEO Matthew Shay said. “However, it appears that worries over the trade war and turmoil in the stock markets impacted consumer behavior more than we expected. There’s also a question of whether the government shutdown and resulting delay in collecting data might have made the results less reliable. It’s very disappointing that clearly avoidable actions by the government influenced consumer confidence and unnecessarily depressed December retail sales.”
Economic uncertainty again comes in for the blame, as the NRF economist emphasizes.
“Today’s numbers are truly a surprise and in contradiction to the consumer spending trends we were seeing, especially after such strong October and November spending,” NRF Chief Economist Jack Kleinhenz said. “The combination of financial market volatility, the government shutdown and trade tensions created a trifecta of anxiety and uncertainty impacting spending and might also have misaligned the seasonal adjustment factors used in reporting data. This is an incomplete story and we will be in a better position to judge the reliability of the results when the government revises its 2018 data in the coming months.”
AdAge reports some question the data.
Some analysts reacted not just with surprise but with an unusually large dose of skepticism. Jim O’Sullivan of High Frequency Economics said the figures were so much weaker than expected “that the data lose credibility,” while Stephen Stanley of Amherst Pierpont Securities said the report “seems seriously out of whack” given mostly upbeat comments from retailers about the Christmas season.
The report was delayed about a month by the federal closure. “I’m actually wondering whether the government shutdown created issues for them in terms of data collection and quality,” said Neil Dutta, head of economics at Renaissance Macro Research.
Still, as Calculated Risk reports, the disappointing results have led to some recalculation of economic growth.
Following the weak retail sales report, Q4 GDP estimates have been revised down.
From Goldman Sachs:
The retail sales report indicated a considerably weaker pace of fourth quarter consumption growth than we had previously assumed. Reflecting this and lower-than-expected November business inventories, we lowered our Q4 GDP tracking estimate by five tenths to +2.0% (qoq ar).
From Merrill Lynch:
Weak retail sales data and inventory build caused a 0.8pp decline in our 4Q GDP tracking estimate to 1.5% from 2.3%
Less significant, perhaps, but also of concern: unemployment claims rose last week.
The number of Americans applying for unemployment benefits rose last week but remains at levels low enough to show that most workers enjoy job security.
The Labor Department says claims for unemployment checks increased by 4,000 to 239,000. The four-week average, which does not bounce around as much, rose 6,750 to 231,750. That’s highest level since late January 2018.
We’ve written that hiring remains strong and employers remain confident. But the news reminds us that this is a time of uncommon uncertainty (we’ll continue to believe it’s uncommon). At such a time, budget writers will want to preserve rainy day funds, be conservative in the projections of future revenue growth. and be cautious about taking actions that can dampen job creation and investment.