Shoppers Catch Their Breath, Small Business Sentiment Improves
- Retail Sales for November increased by a mildly disappointing 0.2 percent, October was revised up.
- November Ex-auto Retail Sales increased by 0.2 percent. Motor Vehicle sales gained 0.5 percent.
- The National Federation of Independent Business’s Optimism Index increased moderately in November.
- Job Openings for October ticked down slightly to 3.3 million, however the trend is still your friend.
- Business inventories for October increased by 0.8 percent, on track to support Q4 GDP.
Shoppers had to catch their breath in November after solid gains to retail sales in September and October. The whole set of consumer-related economic data so far in the second half of 2011 supports a narrative that says consumers have ample pent-up demand and would like to spend more, but they are still constrained by weak income growth and a reluctance or inability to take on more debt. In this narrative, consumers can increase their spending to keep pace with overall economic growth, but cannot lead economic growth as they did in the 2000s. Total motor vehicle sales gained 0.5 percent in November, despite a stronger jump in unit auto sales from a 13.2 million unit rate in October to 13.6 million units in November. Electronics store sales increased in November by 2.1 percent, but most other categories showed only weak gains or losses. Today’s retail sales report for November takes some shine off of total holiday sales for 2011. Despite strong anecdotal reports for Black Friday and Cyber Monday, it looks like shoppers will keep a grip on their wallets and push total holiday sales up slightly above inflation this year, in the range of about four-to-five percent nominal growth over last year.
The November NFIB small business Optimism Index ticked up by 1.8 points. The level of the Optimism Index remains in a somewhat depressed range, but at least it is heading in the right direction. More small business owners say they are planning to create new jobs over the next three months. Capital spending plans improved slightly. Job openings for October ticked down slightly to 3.3 million. There is no reason to think that the upward trend, in place since mid-2009, will be challenged. Business inventories for October increased by 0.8 percent. Stronger inventory accumulation in Q4 will be supportive of real GDP growth. Risks to our December forecast of 3.1 percent real GDP growth for Q4 are accumulating on the upside. We are within striking distance of the peak post-recession quarterly growth rate of 3.9 percent from 2010Q1. The first half of 2012 still looks shaky at a less than 2.5 percent GDP growth rate.
Market Reaction: Equity markets opened with gains. Treasury yields are up. Oil is up to $100.06/barrel. The dollar is down against the yen and up versus the euro.