Retail Sales in U.S. Climbed More Than Forecast in December
Comment of the Day

January 14 2014

Commentary by David Fuller

Retail Sales in U.S. Climbed More Than Forecast in December

Here is the opening of this informative article from Bloomberg:

Retail sales rose more than forecast in December as consumers snapped up holiday gifts amid year-end discounting, giving the world’s biggest economy a lift at the end of 2013.

Purchases increased 0.2 percent after a 0.4 percent advance in November that was smaller than previously reported, Commerce Department figures showed today in Washington. The median forecast of 86 economists surveyed by Bloomberg called for a 0.1 percent gain. Excluding cars, demand jumped by the most in almost a year.

Holiday-season deals probably helped retailers overcome the coldest December in four years. At the same time, improving confidence owing to falling joblessness and further healing in the housing market is likely to support household spending, which accounts for almost 70 percent of the economy, in 2014.

“There is the hope that the momentum is going to continue and the good news will feed on itself,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who correctly projected the rise in retail sales. “Better spending will lead to more jobs and more jobs will lead to more spending.”

For all of 2013, retail sales rose 4.2 percent from the prior year, following a 5.4 percent gain in 2012.

David Fuller's view

This modestly positive retail sales report, which included the recent ‘Polar Vortex’ freeze in parts of the USA earlier this month, should be sufficiently favourable to end any talk that January’s initial 10-billion taper of QE would be delayed.  That was always unlikely and is clearly unnecessary, although the Fed would be happier if the US recovery showed a little more momentum. 

That is understandable but US GDP is about where one would expect after a severe credit crisis recession.  Carmen Reinhart, Kenneth Rogoff and other economic historians have previously pointed out that it takes at least five to ten years for an economy to recover following a crash such as we saw in 2008.

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