December retail sales could reflect broader economy’s job gains

We know now that private employers were hiring at a surprisingly strong pace in December. It’s time to find out how consumers behaved last month during the all-important holiday season.
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We know now that private employers were hiring at a surprisingly strong pace in December. It’s time to find out how consumers behaved last month during the all-important holiday season.

The week’s key reports won’t arrive until Friday, but they probably will be heartening. Bloomberg says the Commerce Department is expected to report that retail sales rose in December for the third consecutive month.

The University of Michigan’s preliminary Consumer Sentiment Index for January is also due Friday and economists expect a small increase to 93.0 from 92.6 in December, reflecting a steady upswing in the mood of the American public.

The optimistic forecasts follow the Labor Department’s report Friday that the economy added 292,000 jobs in December and that payrolls grew in October and November by a total of 50,000 more than previously reported.

Reuters said the solid job growth eased fears about the economy and suggested that recent weakness largely will be limited to manufacturing and export-related sectors.

"It gives us a short-term shot in the arm and pushes back the idea that we are headed for a global recession or that weakness in China will sink our economy," David Donabedian, chief investment officer at Atlantic Trust Private Wealth Management in Baltimore, told Reuters.

Economists had expected a more modest increase of 200,000 jobs in December. There was a one-cent drop in hourly earnings, but economists told Reuters that the decline could be attributable to a calendar-related quirk.

Other reports due this week include industrial production for December, which is forecast to post a decline. Bloomberg said reduced utility demand amid moderate winter weather probably would be a significant reason if that development proves true.

The Producer Price Index for December also will be out that day, and economists forecast a 0.2 percent decline, compared with an 0.3 percent gain the previous month.

Economy watchers will want to keep track of seven Fed officials’ public appearances this week. In speeches from Atlanta to Dallas, regional Fed presidents will address the economic outlook and monetary policy in the wake of the small interest-rate increase the central bank approved in December.

More rate increases are expected this year as long as the economy continues to show strength.

On Monday, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said global risks that include a slowdown in China and low oil prices are the primary risks to the economy, according to a CNBC report.

He thinks the country’s gross domestic product could grow as much as 2.5 percent this year and expects consumer and business spending to be strong enough to sustain the recovery and allow for more interest-rate increases if there is “hard evidence” that inflation is rising.

"The behavior of inflation will be a key focus," Lockhart told the Rotary Club of Atlanta.

Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, planned to address the North Texas Economic Forum in Dallas Monday night.

Today Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, will speak at the annual meeting of the South Carolina Business & Industry Political Education Committee in Columbia.

On Wednesday, the president of the Federal Reserve Bank of Boston, Eric S. Rosengren, will be the featured speaker at the Greater Boston Chamber’s Government Affairs Forum. Also that day, Federal Reserve Bank of Chicago President Charles L. Evans will speak at the Corridor Economic Forecast Luncheon in Cedar Rapids, Iowa.

On Thursday, Federal Reserve Bank of St. Louis President James B. Bullard speaks to the Economic Club of Memphis at its regional economic briefing and breakfast in Tennessee. Federal Reserve Bank of New York President William C. Dudley speaks at the Economic Leadership Forum in Somerset, N.J.

MarketWatch said the strong December jobs report makes it more likely that the next rate increase will come at the Fed’s March 15-16 meeting.

“Everything is pointing to a March hike,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York.

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