Stocks are on track to start today’s session deep in negative territory on further weakness in oil prices, which has been a key market driver in recent days. Adding to the oil-related nervousness is next week’s decisive Fed meeting, with this morning’s positive economic report reconfirming the market’s Fed expectations.
The November Retail Sales reading looks mixed on its surface, but the report’s internals are very positive and reflective of an improving consumer spending backdrop in the current period and beyond. The ‘headline’ growth number came shy of estimates, but the ex-gasoline and autos numbers came in better than expected.
The so-called ‘control group’ — the part of this monthly report that feeds directly into GDP calculation — also came in better than expected. This report is consistent with what we have started seeing lately with respect to wage growth and broader labor market gains, which is helping household buying power and spending trends.
There has been a lot of hand-wringing lately about holiday shopping trends on the back of sub-par results from department stores and foot traffic in the malls. Many were surprised at the weak department store numbers given strengthened household balance sheets as a result of lower gasoline prices. The growth of online shopping and warmer weather likely offers explanations for those developments as economy-wide spending trends appear not only to be healthy, but actually quite strong.
This report doesn’t have a direct Fed implication, as the central bank was on course for announcing lift-off at next week’s FOMC meeting in any case. It nevertheless offers reassurance that the U.S. consumer is in strong enough shape to withstand the coming Fed tightening cycle.
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