There were two important reports on the U.S. economy released this morning. First, household inflation pressures in America continued to firm last month, according to new data from the Bureau of Labor Statistics (BLS). Specifically, the core consumer price index (CPI) for all urban consumers, which excludes the volatile food and energy components, rose by 0.3 percent in December. That was the biggest monthly gain in almost a year and much larger than economists had expected. Most of the increase in December was due to rising shelter costs (rent), but the prices for medical care and prescription drugs also rose markedly. It is worth noting that the latest CPI figures somewhat disagree with yesterday’s report on wholesale inflation in America, and the Fed’s preferred measure of inflation, the PCE deflator, has yet to be released for the month of December. Regardless, the market-implied odds of the next quarter-point hike to the Federal funds rate occurring at the March Federal Open Market Committee (FOMC) meeting rose this morning immediately following the release of the CPI report.
Elsewhere, data from the U.S. Census Bureau showed that advance estimates of retail and food services sales in December totaled $495.4 billion. That was a 0.4 percent increase from November’s upward-revised print but slightly worse than anticipated. Core retail sales also rose by 0.4 percent last month, helped by strong gains at non-store retailers (Amazon), and furniture outlets and building supply centers. On a year-over-year basis, retail sales growth excluding automobile sales increased by 4.3 percent in December, the best pace of annual growth since 2011. Further, 2017’s holiday shopping season (average retail sales for November and December) was the strongest since 2010. That is likely a reflection of low unemployment and near-record high consumer confidence, and bodes well for fourth quarter U.S. gross domestic product (GDP) growth. However, the personal savings rate continues to decline, and revolving credit utilization has jumped recently, meaning that the latest uptick in consumer spending may not be sustainable without a more pronounced pick-up in wage growth.
Sources: Econoday, Bloomberg, ZH, U.S. DoL, Census Bureau, FRBSL
Post author: Charles Couch