Retail data, Beige Book in view after weak jobs figures
WASHINGTON (MarketWatch) — Is the startling weak job report an outlier? Or is the economy already at a plateau after looking so good in the last two months of the year?
That is the question on everyone’s mind after the Labor Department on Friday reported the slowest monthly pace of job growth in three years in December.
Economists think the cold weather in December made the report weaker. They will look for confirmation of this theory in other reports. Unfortunately the big batch of economic data this week will not provide much clarity, said Josh Shapiro, chief economist at MFR Inc.
On tap will be the retail sales report for December. The supporting cast includes reports on inflation, inventories, manufacturing and an update in consumer sentiment. The Beige Book report of economic anecdotes from the Federal Reserve also will be closely scrutinized.
Retail sales, typically on the month’s biggest indicators, is expected to be distorted by a big decline in auto sales, economists said.
In December, sales are expected to increase 0.2% in December, down from a 0.7% gain in November. Excluding autos, sales should rise 0.4%, matching the prior month’s gain.
The biggest mystery: Inflation
The biggest uncertainty in the economy right now is the behavior of inflation.
Fed officials said all last year that they thought inflation would pick up towards their 2% target, but prices stayed weak, surprising officials.
Why? No one knows. for certain. “There is no generally accepted explanation for low inflation readings,” said James Bullard, president of the St. Louis Federal Reserve Bank, on Friday.
Low inflation could turn out to be a harbinger of bad economic tidings.
At its last rate-policy meeting in December a few Fed officials “raised the possibility that recent declines in inflation might suggest that the economic recovery was not as strong as some thought,” according to a summary of the meeting issued this week.
But the majority of the Fed said they think inflation won’t go any lower.
They continued to view the slowdown as temporary and pointed to slowing in price increases for medical care and banking services, the minutes show.
The committee only agreed to watch inflation carefully.
Fed committee members “agree that inflation is now too low but no one seems to want to do anything about it,” said Robert Brusca, chief economist at FAO Economics.
The weak December jobs report “certainly adds fuel to the fiery debate on whether low inflation is likely to continue or is sending a signal about the underlying strength of the economy,” said Julia Coronado, chief U.S. economist at BNP Paribas in a research note.
“We think the Fed is likely to go ahead with its signaled path of tapering $10 billion at the January meeting, but if the broader data signal a plateauing in recent momentum, inflation data continue to trend lower and financial markets get shaky they could consider a pause in March,” she added.
The consumer price index is expected to tick up 0.3% in December led by gasoline prices. The core index, excluding food and energy, is expected to soften to a 0.1% gain from a 0.2% increase.
At the wholesale level, prices are expected to rise 0.4% in December following a 0.1% drop in November. The PPI core index is expected to rise 0.2% after a 0.1% gain in the prior month.
As a result, producer price on a year-over-year basis inflation could rise above 1%, with core inflation closer to 1.3%.
“With the lagged effect of the previous easing in import prices yet to be felt in full, producer price inflation will probably remained similarly subdued during the first half of this year,” said Paul Dales, chief economist at Capital Economics.
