A day after the Federal Reserve raised interest rates by a quarter-point and noted that “household spending has been expanding at a moderate rate,” the Commerce Department said retail sales rose 0.8 percent in November.
The Fed said it raised the target range for the federal funds rate to 1.25 to 1.5 percent “in view of realized and expected labor market conditions and inflation.” It was the third time the central bank has raised rates this year.
Meanwhile, the retail sales gain was higher than economists predicted. The department also said it was revising October’s gain to 0.5 percent from 0.2 percent.
“November’s retail sales report suggests that consumers are responding positively to solid job gains, increasing income growth and record levels of household net worth,” David Berson, chief economist of Nationwide, said in a MarketWatch story.
The Fed said it “continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term, but to stabilize around the [Federal Open Market Committee's] 2 percent objective over the medium term.”
The interest-rate and retail sales news were among the best reports that economy watchers received last week.
Separately, the National Federation of Independent Business said its Index of Small Business Optimism rose 3.7 points, to 107.5 in November, the highest it has been since Ronald Reagan was president.
“We haven’t seen this kind of optimism in 34 years, and we’ve seen it only once in the 44 years that NFIB has been conducting this research,” NFIB president and CEO Juanita Duggan said in a statement. “Small-business owners are exuberant about the economy, and they are ready to lead the U.S. economy in a period of robust growth.”
The NFIB said eight of the 10 components of its index improved, including a 16-point gain in expected better business conditions, which the group called “stunning and rare,” and a 13-point jump in sales expectations.
“This is the second-highest reading in the 44-year history of the index,” NFIB chief economist Bill Dunkelberg said. “The NFIB indicators clearly anticipate further upticks in economic growth, perhaps pushing up toward 4 percent GDP growth for the fourth quarter. This is a dramatically different picture than owners presented during the weak 2009-16 recovery. The change in the management team in Washington has dramatically improved expectations.”
The day the Fed announced its rate increase, the Labor Department said its Consumer Price Index rose 0.4 percent in November and said core inflation, which removes food and energy prices, rose 0.1 percent.
The department said that during the past 12 months its all-items index rose 2.2 percent.
In a measure of the strength of the manufacturing sector, the New York Fed said its Empire State Manufacturing Survey fell slightly, to 18, this month.
“Manufacturing firms in New York state reported that business activity continued to expand strongly. … Thirty-seven percent of respondents reported that conditions had improved over the month, while 19 percent reported that conditions had worsened,” the Fed said in a statement. “The new orders index held steady at 19.5, and the shipments index rose four points, to 22.4 — readings that indicated ongoing solid growth in orders and shipments.”
Economy watchers will see November reports on housing starts and building permits today, existing-home sales on Wednesday and new-home sales on Friday. The Conference Board will issue its Leading Economic Index on Thursday, and on Friday the Commerce Department will issue November reports on personal income, consumer spending and core inflation.
Also on Friday the University of Michigan will issue its final Index of Consumer Sentiment for December. Consumers have remained in a strongly positive mood this year, and a solid reading from this index would suggest that the economy will continue to grow as the new year begins.