Initial jobless claims dropped sharply and US retail sales topped estimates in a one-two data punch that underscored the resilience of the world’s largest economy and stood in stark contrast to escalating bets on rate cuts from the Fed.
Claims fell to just 202,000 in the week to December 9, Thursday’s update showed. That was below every estimate from nearly four-dozen economists. The range was 203,000 to 237,000.
Recession spotters spent (read: wasted) quite a bit of time this year eyeing the initial claims series for signs of an imminent downturn. By mid-October, it was plain the effort was futile. Despite sharply tighter financial conditions, claims trundled to the lowest levels since January and, notwithstanding a brief spike to three-month highs, have remained subdued since.
The four-week moving average sits at 213,300 with the latest release.
Continuing claims, which plunged in the last update, rose to 1.876 million for the week ending December 2. That puts the series back near two-year highs, but that’s nothing new. The undershoot on the initial claims print is what’ll interest traders.
Meanwhile, retail sales unexpectedly rose in November, the government said Thursday, in what it’s fair to call a better-than-anticipated start to the holiday shopping season. The 0.3% gain matched the highest estimate from 64 economists. Consensus expected a slight decline.
October’s small decline was revised to show a larger drop, but November’s gain will easily overshadow the revision.
Last month’s increase counts as the seventh in eight months, and I suppose it should be considered with what we now know was a burgeoning sentiment shift among consumers, whose mood brightened considerably in early December.
The ex-autos retail sales print showed a 0.2% advance. Consensus expected a decline there too. Most notably, the control group notched a 0.4% increase, double the forecasted gain. That should be a boon to current-quarter growth trackers.
Eight of 13 categories showed an increase for November in the retail sales report. Spending at nonstore retailers rose 1% and spending at food services and drinking places, the only services sector category in the report, jumped 1.6%.
Needless to say, exactly none of the above is consistent with the idea that the Fed needs to cut rates. Thursday’s data releases out of the US will thus be enough to drive Fed critics to frustrated tears after Wednesday’s dovish dot plot and Jerome Powell’s equally obliging press conference.
I wonder how much of consumers’ brighter mood in early December is due to the soaring stock market? With jobs still plentiful and stock and bond markets rewarding investors bigly, it’s hard for me to see the FOMC moving to cut rates in the forseeable future (see Goldman’s March call).
It has less to do with the stock market than it does the job market. The economy is driven by people who earn a wage more than it is by people (a very small percentage of the populous) who invest. As long as the job market is strong, the economy will be strong. Firms that had layoffs in the beginning of the year were anticipating a recession that has yet to come. The job market is the canary in the recession coal mine. I expect this confounding economy to normalize in Q2 ’24.
I realize that technically, the Fed, is not directly concerned with the effect of US interest rates on developing countries— however, higher rates for longer is creating a crisis in lower income countries and causing whatever resources those poor countries have to be shifted from health, education and social safety payments to interest payments.
The World Bank just published a report on the debt burden for developing countries, stating that debt was a particular problem for the 75 low income countries eligible for low interest rate loans and grants from its International Development Association (IDA). Debt service payments for this group of countries reached a record $88.9bn in 2022 after a quadrupling of interest payments in the past decade. Overall debt-servicing costs for the 24 poorest countries are expected to balloon in 2023 and 2024 – by as much as 39%, the report found.
The US might have to bear a bit higher inflation than target; and lower rates sooner rather than later in order to help stabilize poor, developing countries- and avoid global economic/human chaos- which absolutely would have a negative impact on the US economy.
Weep away – Powell made it clear that strong economic data will not cause the FOMC to turn hawkish. In fact, he even suggested that if strong economic growth causes inflation to decline more slowly to the Fed’s target (which isn’t until 2025 anyway), this wouldn’t be terribly worrisome to the Committee.
I’m paraphrasing, here’s the exchange:
“JEANNA SMIALEK. Jeanna Smialek, New York Times. Thanks for taking our questions. In the SEP from today, growth is notably below potential in 2024. If growth were to surprise us again in the way that it has for years now by being stronger than expected next year, would it still be possible to cut rates, or put another way, is below-trend growth necessary to cut rates, or would continued progress on inflation alone be sufficient?”
“CHAIR POWELL. So we’ll look at the totality of the data. Growth is one thing. So is inflation. So is labor market data. So we’d look at the — as we make decisions about policy changes going forward, we’re going to look at all those things and particularly as they affect the outlook. So it’s ultimately all about the outlook and the balance of risk as well. So that’s what we’d be looking for. If we have stronger growth, you know, that’ll be good for people. That’ll be good for the labor market. It might actually mean that it takes a little longer to get inflation down to 2 percent. We will get it down to 2 percent, but you know, if we see stronger growth, we will set policy according to what we actually see, and so, that’s how I would answer. “
https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20231213.pdf
With pandemic-distorted demand/supply inflation in goods now mostly corrected, the FOMC seems to be confident that it is bringing shelter inflation and super core inflation (services ex-shelter) under control. And, I increasingly suspect that political considerations are at work, in that the FOMC really does not want to tip the economy into recession in 2024.
I think the political calculus is complicated. A recession will cost a few million people their jobs (one hopes temporarily), but inflation affects pretty much everyone, and right now inflation above 3 percent (and supercore above 4 percent) is ticking people off bigly. It’s a rock-and-a-hard place situation for the Dems, imo.