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Retail Sales Driven by Higher Spending on Motor Vehicles

Retail consumption in the final month of 2016 increased by 0.6%, led by higher spending on motor vehicles, the Census Bureau reports.

 

By James Picerno

 

Although the increase was slightly below expectations, the rise was enough to boost the year-over-year trend above the 4% mark for the second time last year.

Sales advanced 4.1% in December vs. the year-earlier level, the second-best reading for 2016. Some analysts, however, worry that the year-end numbers relied too heavily on auto purchases to inspire confidence about the consumer sector. Today’s update suggests “that the surge in consumers’ confidence since the election has not yet translated into spending,” opines Ian Shepherdson, chief economist at Pantheon Macroeconomics.

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Whatever today’s release implies about the new year, it’s clear that the sales trend ended last year on a moderately encouraging note. The annual 4.1% through December is a middling rate relative to recent history, but the trend appears steady.

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The latest figures don’t change the outlook for fourth-quarter GDP, which is widely expected to post a softer growth rate vs. Q3’s solid 3.5% advance. The Atlanta Fed’s nowcast for economic activity in the last three months (prior to today’s retail sales data) was 2.9% while the New York Fed’s Jan. 6 projection sees a weaker 1.9% rise.

Despite the worries that December’s sales increase was a weak 0.2% for retail without autos, the annual trend by this benchmark still looks decent. Spending ex-motor vehicles and parts dealers increased 3.4% for the year. That’s down from the 4.0% rate in each of the previous two months, but it’s still well above the 2.0% year-over-year gain in August.

The main uncertainty for the economy, of course, is centered on politics generally and the incoming Trump administration specifically. The optimistic spin is that firmer growth is coming once the new occupant of the White House has time to refocus and re-energize economic policy.

In the meantime, the US economy probably expanded at a moderate rate in the final quarter of last year. That’s hardly the basis for expecting a boom, but it’s not the basis for gloom either.

As Fed Chair Janet Yellen said yesterday, in the “short term I would say I don’t think there are serious obstacles. I see the economy as doing quite well.”

If there’s soft spot in her outlook, it may be in payrolls. Last week’s numbers on new jobs in the private sector continued to show the annual trend easing, albeit slowly. It’s too early to assume the worst, however.

Nonetheless, the combination of new President and moderate economic growth that may be vulnerable to deceleration leaves plenty of room for debate about the year ahead.

Chicago Federal Reserve President Charles Evans, however, is optimistic. “The U.S. economy could experience a burst of four percent growth for a year or two or more,”  he advised on Thursday.

Perhaps, although the capacity for accepting that analysis depends on expectations for yet-to-be-detailed tax cuts, deregulation, and fiscal stimulus.