Fed, U.S. retail sales in Wall Street’s sights

Fed, U.S. retail sales in Wall Street’s sights
Growth not fast enough to suit bank; nor is consumer spending
WASHINGTON (MarketWatch) — When Federal Reserve bigwigs put the economy on the couch this week, they’ll see a nation held back by so-so consumer spending, lukewarm hiring trends and lackluster business investment. http://www.marketwatch.com/story/fed-us-retai...atest_news

If they had a magic elixir, they would have used it by now. They don’t.

Top U.S. central bankers will meet in Washington on Tuesday and Wednesday to scope out the economic landscape. A day later, the government will release the key retail sales report for November.

“Retail sales matter, but the Fed is the biggest event of the week,” said Kate Warne, investment strategist at the brokerage Edward Jones.

Investors aren’t expecting any ground-shaking results, however. The Fed is not expected to change its policy of buying mortgage-backed securities in an effort to lower consumer interest rates, though they may announce a supplemental bond-buying program.

Nor are retail sales likely to explode to the upside.

Here comes the Fed

The first batch of data arrives on Tuesday with the release of wholesale trade, the U.S. trade deficit and a report that calculates how many job openings exist in the U.S. None of the reports tend to be market-moving, though the trade data does figure into estimates for quarterly U.S. growth.

Instead, Wall Street will focus on the regular meeting of top Fed officials that starts Tuesday and extends into Wednesday.

Fed officials want to see a big improvement in hiring and faster U.S. growth before they ease up on their controversial program of buying debt.

The latest employment report for November, however, won’t sway the Fed. The U.S. added a modest 146,000 jobs last month, the government said Friday. That’s roughly the same amount the U.S. has created each month since the start of 2011. Read about job creation in November.

The unemployment rate, meanwhile, did fall to 7.7% from 7.9%, but that was because more people dropped out of the labor force. Usually that’s not a good sign because it means jobs are harder to find.

“The Fed has said that is not acceptable,” said economist John Canally of LPL Financial. “The status quo does not count as substantial and sustained improvement.”

Ultimately the Fed wants to see the jobless rate fall to 6% or less — the same levels that prevailed before the devastating 2007-2009 recession.

The odds of making more progress on the unemployment front don’t look great in the near future, though. Many executives say they are wary of hiring new workers or making big investments until Washington resolves a budget standoff that threatens to harm the U.S. economy in 2013.

“The downside risks remain palpable. Executives are clearly concerned about the fiscal cliff,” said Michael Griffin, an executive director at CEB, a member-based advisory firm that surveys businesses each quarter.

The latest CEB survey shows an increase in the number of companies that plan to shrink their staff next year. The uncertain political situation in the U.S. and a global economic slowdown, combined with stiffer competition, is putting more pressure on companies to restrain costs.

Low-key consumers

Lackluster hiring means consumer spending is unlikely to rocket higher. Too many people remain out of work and the growth in the average worker’s paycheck isn’t even keeping up with the low increase in annual inflation.

Business are waiting for the consumer to spend,:” said senior economist Brian Levitt of OppenheimerFunds. “Consumers are waiting for businesses to hire.”

Without the full backing of consumers, the economy cannot grow much faster than its current rate of about 2% a year and send the jobless rate sharply lower. Consumer spending accounts for as much as 70% of the economy.

The retail sales report for November is likely to reflect the caution of consumers. The MarketWatch forecast expects a mild increase of 0.2%, but the gain may stem entirely from higher auto purchases. Sales jumped last month as consumers returned to the showrooms in the wake of Hurricane Sandy.

If auto sales are subtracted, retail spending may have fallen 0.3%, according to economists surveyed by MarketWatch. Retailers reported strong Thanksgiving sales but a weaker follow-up.