What’s Keeping The Fed On The Sidelines?
ORBEX | Mar 19, 2019 08:56AM ET
The economic data over the week covered the retail sales report for January and inflation data. The data sets the expectations for the FOMC meeting due tomorrow.
Following the weak jobs report in February, the US economic outlook is looking to start the first quarter on a weaker note, while inflation remains muted for the most part. The FOMC will be meeting this week, concluding its two-day monetary policy meeting.
Economic data remains mixed with rising speculation that the first quarter might have also gotten off on a softer footing compared to the fourth quarter GDP for 2018.
h3 Retail Sales Recovers From December Slump/h3The retail sales report released last week showed an unexpected increase in January. The gains came with an increase in the purchase of building materials and discretionary spending. However, dampening the data was lower revised data for December’s retail sales.
Data from the Commerce Department showed there was a much-needed respite for the economy in the backdrop of the weak jobs report for January.
Data indicated that retail sales rose 0.2% on the month in January. December’s data saw retail sales revised lower to 1.6% against the initial release which showed a 1.2% decline. This marked December’s retail sales declines as one of the largest since September 2009. On a year over year basis, retail sales rose 2.3% in January.
Despite the pick up in retail sales for January, the data doesn’t change expectations that the US economy is slowing its momentum.
Excluding the automobiles, gasoline, food services, and building materials, retail sales rose 1.1% during the month in January. This followed a revised core retail sales figure of 2.3% decline in December.
Online sales and mail order sales increased by 2.6%, marking one of the biggest gains since December 2017. Building material sales jumped 3.3%, the biggest increase since September 2017.
Sales at auto dealerships were down 2.4%, which was the biggest drop since January 2014. This follows a modest increase of 0.3% in December. Sales at service stations fell 2.0% following weaker gasoline prices. Clothing and apparel also fell during the month while sales at restaurants advanced 0.7%.
h3 Retail Sales Forecast Downward Revision to Q4 2018 GDP/h3Still, the January retail sales data was better than expected.
Get The News You Want
Economists polled expected retail sales to remain flat during the month of January. The data was released late due to the partial shutdown in the months of December and January. This further delays the February retail sales report which will now be released in early April.
The retail sales report gives insights into the US consumer spending, which feeds into the GDP report. The freshly lowered numbers for December could mean that the fourth-quarter GDP is at risk of being revised lower.
Initial estimates showed that the US economy advanced 2.6%, which was more than the median forecasts of a 2.4% increase. Besides the retail sales, weakness from the trade deficit and lower construction spending has given a further boost to the prospects that the Q4 annualized GDP would be much lower than what was initially reported.
With the January data, the GDP forecasts are currently showing that growth was at below 1.5% pace. This comes after February’s payrolls report showed that the economy added just 20,000 jobs during the month. This was the slowest pace of jobs added in nearly one and a half years.
h3 US Consumer Prices Rise 0.2% As Expected/h3Headline inflation in the United States for February rose 0.2% as expected, but the annual inflation rate eased from 1.6% to 1.5%. The core inflation rate grew just 0.1% on the month, marking the smallest increase since August last year. Core inflation eased to a pace of 2.1% from 2.2% previously in February on an annualized basis.
The increase in core inflation came due to a rise in shelter prices as well as personal care, apparel, and education.
Headline inflation increased on a rebound in gasoline prices which nudged 1.5% higher following a 5.5% decline in January.
Following the release of the CPI data, producer prices report for February showed a slower than expected increase. Producer prices rose 0.1% on both the headline and core PPI. The slowdown marks a fall in inflationary pressures at the factory gate.
h3 FOMC Meeting Coming Up – No Changes Expected/h3The data comes ahead of this week’s FOMC meeting. Officials have maintained that they will be patient in hiking interest rates. This week’s Fed meeting will also feature the economic forecasts, the Fed’s dot plot and a press conference.
Investors will be looking to see how the policymakers will perceive the current slowdown in the economy as it reduces the expectations for a rate hike.
At the December meeting, the FOMC signaled two rate hikes for this year. It is likely that officials will maintain this view at this week’s meeting when the dot plot is released. This would put any of the three Fed meetings in June, September or December as the likely meetings where rates could be raised.
But with weaker data in the first quarter, any prospects of a rate hike could come during the September or December Fed meetings.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.