Inflation Higher, Retail Sales Weaker
The Consumer Price Index (CPI) rose 0.5% in January, after rising an upwardly revised 0.2% in December. A pickup in food and energy prices prices pushed the overall index up faster than expected. A colder-than-usual January, particularly in many Southern States and their use of heat likely contributed to those gains; some of the usual tourist spots were forced to temporarily close because of the harsh weather conditions. The overall CPI rose 2.1% from a year ago, slightly hotter than many in the financial markets expected.
The core (nonfood and energy) CPI rose 0.3%, also a bit hotter than markets were expecting, Gains were fairly broad-based with the exception of vehicle prices. The biggest upside surprise was a 1.7% monthly surge in apparel costs, which have been falling for years. Retailers were particularly aggressive about keeping their inventories low this year. That, coupled with a good holiday spending (though not quite as strong as first reported), contributed to the gains. I wouldn’t hold my breath that apparel prices are on the rise yet, given what retailers are telling me about online competition. The core CPI edged up to a 1.8% pace from one year ago, something the Federal Reserve will be watching closely.
Perhaps in response to higher prices, retail sales disappointed in January and were revised lower for the month of December. Total retail sales dropped 0.3% during the month, led by a 1.3% decline in vehicle sales. Building material sales also plummeted, which is likely more a reflection of the unusually harsh winter weather, most notably in the South, than a shift in demand. Retailers in the home repair and remodeling space have reported a major upswing in activity in recent months. Look for a big rebound, particularly in the building materials and supply category in the months to come.
Spending at clothing stores increased but not enough to offset the month’s price rise, a sure sign that those prices will come down again next month. The only other strong spot was spending online, which tends to do better when weather conditions are unusually bad; instead of going to the store, people shop from their couches.
Bottom Line. Today’s retail and inflation data painted a grimmer picture of the economy than we have seen in recent months, with inflation picking up and spending abating. Unusually harsh winter weather conditions contributed to those shifts. Moreover, they are in sharp contrast to what we are hearing from retailers, who claim spending was still good in January despite the weather interruptions. February may not deliver the rebound we would like partly because tax returns are coming in slower than usual, which will push many refunds into March from February when consumers typically see them. It has already proven to be a rough start of the year for financial markets. The data is not going to make it much easier in the weeks to come.
January 8, 2018
Economic forecasting added to leading audit, tax and advisory firm
Diane Swonk, founder of DS Economics, is moving her team to Grant Thornton LLP to add economic forecasting as part of the firm’s expansion in client services.
Swonk, who will serve as Grant Thornton’s chief economist, uses uniquely derived insights to illuminate how shifts in the global economy affect a broad range of industries. “This is an extraordinary opportunity to leverage Grant Thornton’s resources to serve clients in a comprehensive manner,” Swonk said. “We are looking forward to collaborating and adding our expertise in fiscal and monetary policy, as well as a deep understanding of shifting labor market conditions at this pivotal time for the economy; as an industry leader with a global presence, Grant Thornton allows us to serve a broad and diverse client base.”
“Businesses today are undergoing a huge amount of change,” said Grant Thornton CEO Mike McGuire. “Companies need sharp and timely economic insights to succeed – the very insights that have made Diane so well-known. With her knowledge and experience across multiple sectors, including the high-growth middle market, Diane and her team complement our forward-thinking approach to solving clients’ problems.”
Swonk and her team will be based in Grant Thornton’s headquarters in Chicago.
Through her boutique consultancy firm DS Economics, Swonk has advised clients from the Fortune 500 to small and midsize firms. Previously, she was Chief Economist at Mesirow Financial and Director of Economics for Bank One Corporation. She served two terms as an advisor to the nonpartisan Congressional Budget Office and Swonk advises the Federal Reserve. She is a distinguished Fellow and past-President of the National Association for Business Economics (NABE) and a member of the Council on Foreign Relations.
Swonk serves on the Sitting Committee for the Booth School of Business at the University of Chicago and advises the Department of Economics at the University of Michigan. She sits on the NABE Statistics and Policy Committees as well as the board for the NABE Foundation. She is an active member of the board of the Posse Foundation in Chicago, a nonprofit dedicated to expanding access to higher education. She has also served on a number of other nonprofit boards including the Joffrey Ballet, as well as state and local advisory panels.
She received her bachelor’s and master’s degrees in economics with top honors from the University of Michigan. She received a master’s degree in business administration in finance from the University of Chicago, also with top honors.
About Grant Thornton LLP
Founded in Chicago in 1924, Grant Thornton LLP (Grant Thornton) is the U.S. member firm of Grant Thornton International Ltd, one of the world’s leading organizations of independent audit, tax and advisory firms. Grant Thornton, which has revenues in excess of $1.7 billion and operates 59 offices, works with a broad range of dynamic publicly and privately held companies, government agencies, financial institutions, and civic and religious organizations.
“Grant Thornton” refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please see grantthornton.com for further details.
Payroll employment rose by 148,000 in December, which on the surface looked like a miss but the fourth quarter was the strongest of the year with the addition of 611,000 new jobs; it was the second-strongest quarter for employment in the last two years. Read More »
Our forecast for nonfarm payroll employment is an increase of 180,000 for December after moving above 200,000 during the last two months. The catch-up in employment related to hurricane disruptions is behind us now. Employers tell us that it is harder to find workers to fill positions, particularly low-wage jobs.
Construction spending rose 0.8% in November after downward revisions to October. Solid gains in private sector construction activity offset lackluster performance in the public sector. That trend will likely continue despite talk of an infrastructure bill by the administration in 2018. The administration prefers to target public sector investment to projects that will bring in private sector investors; that means toll roads and bridges
Consumer spending rose 0.4% in November after adjusting for inflation. That follows a slight downward revision for October. The gains outpaced disposable incomes, which rose a tepid 0.1% after adjusting for inflation. Some of the increase in consumer spending relative to incomes can be attributed to the drawdown in wealth and the use of insurance (as opposed to income) to repair and replace property damaged by recent storms and fires. There is also a small wealth effect
Housing starts rose to a 1.29 million-unit annualized rate in November, up 3.3% from October. The surge initially reported for October, however, was revised down. The critical, single-family home market accounted for the bulk of the increase in starts but remains well below demand. Shortages of both new and existing homes, particularly in the entry-level market, remain acute.
Moderate gains in the single-family home market were driven by a jump in starts in the South, which suffered the largest disruption and damage associated with hurricanes.
Retail sales jumped 0.8% in November, more than double market expectations, and were revised up for the month of October. That was despite a decline in vehicle sales, which had been boosted by replacement demand following recent disasters.
Gains were fairly broad-based with the exception of a few key categories.
The Federal Open Market Committee (FOMC) raised rates for a third time this year, the fifth of Chair Janet Yellen’s tenure, to a target range of 1.25% to 1.5%; that’s up .25%. The statement again flagged the lagging performance of inflation despite stronger economic conditions. Presidents Neel Kashkari at the Minneapolis Fed and Charlie Evans of Chicago dissented on the decision to raise rates.
The Consumer Price Index (CPI) rose 0.4% in November, supported by a rise in prices at the gas pump. The jump in energy prices alone contributed three quarters of the increase. A recent drop in oil inventories and additional spike in oil prices suggest that higher energy prices will persist into December. This could put damper on holiday spending in low-income households. High-income households continue to ride the tide of rising stock and real estate values, most notably in the most populated cities. The CPI rose 2.2% from a year ago in November, up slightly from the 2% pace of October, but well off of the peak of 2.7% in February.