Car sales driving economy as old year yields to new

Retail sales rose nearly as much as analysts expected in December, which would seem to suggest the economy is poised for a strong start to the new year.
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Retail sales rose nearly as much as analysts expected in December, which would seem to suggest the economy is poised for a strong start to the new year.

Yet the way the economy achieved its gains made for diverging opinions about the best way to understand the 0.6 percent increase the Commerce Department reported Friday.

The Wall Street Journal said consumers spent “at a solid pace,” buying cars and shopping online, and noted that workers’ wages grew faster last year as the cost of living rose only modestly.

Auto sales rose 2.4 percent in December, which Reuters said accounted for much of the retail sales gain. Sales at service stations rose 2 percent, a reflection of higher gasoline prices.

The National Retail Federation was pleased with the results, noting that holiday sales rose 4 percent in November and December from the same two-month period a year earlier.

“These numbers show that the nation’s slow-but-steady economic recovery is picking up speed and that consumers feel good about the future,” National Retail Federation president and CEO Matthew Shay said in a statement.

“Retail mirrors the economy. And while there might have been some bumps in the road for individual companies, the retail industry overall had a solid holiday season and retailers will work to sustain this in the year ahead.”

MarketWatch had a different take on the numbers, saying sales ended the year “on a soft note” and pointing out that although auto dealers set a record for the month, sales apart from that sector rose just 0.2 percent.

Ian Shepherdson, chief economist of Pantheon Macroeconomics, told MarketWatch that the December sales report suggests “that the surge in consumers’ confidence since the election has not yet translated into spending.”

Economists that MarketWatch polled had expected an 0.8 percent gain in December. Nonetheless, the news report said economists don’t think the relatively soft sales are a harbinger of the year ahead. They point to President-elect Donald Trump’s plan to cut taxes and increase spending on infrastructure.

"There is no reason to suspect that consumption growth is going to weaken in the first half of this year," Paul Ashworth, chief U.S. economist at Capital Economics in New York, told Reuters, "particularly not when households will be anticipating a potentially big decline in tax rates at some point this year."

Consumers continue to be upbeat. The University of Michigan’s Consumer Sentiment Index was at 98.1 in mid-January, nearly as high as the 98.2 peak level it registered in December.

“The Current Conditions Index rose 0.6 points to reach its highest level since 2004, and the Expectations Index fell 0.6 points, which was lower than only the 2015 peak during the past dozen years, Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement.

Noting the country’s political divisions, Curtin also said “the post-election surge in optimism was accompanied by an unprecedented degree of both positive and negative concerns about the incoming administration spontaneously mentioned when asked about economic news.”

“This extraordinary level of partisanship has had a dramatic impact on economic expectations,” Curtin also said. “In early January, the partisan divide on the Expectations Index was a stunning 42.7 points (108.9 among those who favorably mentioned government policies, and 66.2 among those who made unfavorable references). Needless to say, these extreme differences would imply either strong growth or a recession. Since neither is likely, one would anticipate that both extreme views will be tempered in the months ahead.”

This week brings fresh reports on inflation and the housing market. The Consumer Price Index for December is due on Wednesday, and MarketWatch said economists expect an increase of 0.3 percent, compared with a rise of 0.2 percent the previous month.

The expectation for what is known as core CPI, which strips out volatile energy and food prices, is a gain of 0.2 percent, the same as in November.

The Commerce Department will release its report on December housing starts Thursday and the expectation is for a pace of 1.18 million at a seasonally adjusted annual rate, up slightly from 1.09 million in November.

The government won’t issue any statistical reports on Friday, but the new president will deliver his much-anticipated inaugural address.

Trump has already said much about what he wants to do with the economy. On Friday he gets to start taking action.

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