Retail Sales, Factory Output Decline: U.S. Economic Takeaways

  • Economists cut 4Q GDP tracking estimates after reports
  • Sentiment survey shows consumers expect more discounting

Retail Sales Data Drag Down Stocks

What you need to know about Friday’s U.S. economic data:

RETAIL SALES (DECEMBER)

  • Fell 0.1 percent after a 0.4 percent (revised from 0.2 percent) gain in November
  • Rose 2.1 percent in 2015, smallest advance of the expansion
  • Retail control group, sales figures that feed into GDP calculation, unexpectedly dropped 0.3 percent last month, the most since February
  • Sales declined in six of 13 major categories, including electronics, clothing and grocery stores

The Takeaway: Holiday spending petered out after a stronger November. The drop indicates Americans were intent on socking away the savings from cheaper fuel instead of splurging. The data raised concern about the momentum in household consumption, which accounts for about 70 percent of the economy. Economists trimmed GDP estimates after taking into stock the results, as well as factory production and business inventories data also out Friday. Analysts at Barclays Plc cut their 4Q GDP tracking estimate to 0.3 percent from 0.7 percent. Economists at Macroeconomic Advisers, which reduced their forecast to 0.4 percent, also said weakness in core sales implies less consumer spending in the first quarter.

INDUSTRIAL PRODUCTION (DECEMBER)

  • Fell 0.4 percent, more than 0.2 percent forecast, and November revised down to 0.9 percent decrease (most since May 2009)
  • Factory production dropped 0.1 percent for a second month, output at utilities fell 2 percent and mining down 0.8 percent
  • Decrease in manufacturing reflected slowest pace of motor vehicle and parts assemblies (11.83 million) since June

The Takeaway: Battered by weaker global demand, a strong dollar, the slump in commodities prices and now signs (retail sales) that demand from American households is flagging, the outlook is bleak for the nation’s factories. Even excluding the downturn in motor vehicle production, factory production was up just 0.1 percent after no change. Compared with a year earlier, durable goods output minus autos was unchanged. Oil and gas well drilling dropped 7.4 percent, the most since May. The index, now at its lowest level since April 1993, indicates further declines in equipment investment as crude oil prices continue to slump.

EMPIRE STATE MANUFACTURING (JANUARY)

  • Fell to minus 19.4 (est. minus 4), the lowest since March 2009, when U.S. was in a recession
  • Measures of new orders (minus 23.5) and sales (minus 14.4) were also weakest in almost seven years
  • Six-month outlook index at 9.5, the weakest since March 2009

The Takeaway: While the headline reading can sometimes diverge from the underlying figures because it’s a separate question and not based on the sub-gauges, the message this month was unanimous. The sour readings were broad-based, indicating manufacturing in this part of the country, at least, remained in recession at the start of 2016. Should such weak data be confirmed in other regional reports from Philadelphia, Richmond and Chicago, it would point to continued declines in factory production.

MICHIGAN CONSUMER SENTIMENT (JANUARY PRELIMINARY)

  • Rose to 93.3 from 92.6
  • Current conditions gauge dropped to 105.1 from 108.1
  • Index of expectations rose to 85.7 from 82.7
  • Consumers’ projected inflation rate lowest since 2010

The Takeaway: A seven-month high in the consumer sentiment gauge, after the best annual performance since 2004, was clouded by Americans’ short-term expectations for even bigger discounts and a concentration of optimism among those making more than $75,000 a year. Respondents saw inflation rising 2.4 percent in the year ahead, the lowest such projection in more than five years, which is at odds with Federal Reserve officials’ view that prices will pick up with the economy. Consumers judged their current finances as weaker, and those balance sheets could take a further hit in the month ahead as stocks continue to slump. The Standard & Poor’s 500 Index is down more than 8 percent since the start of this year after little change in 2015.

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