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Retail Sales Increased in January

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More strong economic data greets our pre-market mid-week, which in normal times would be very good news for both the market and the economy. Of course, as we like to remind everyone every so often, we are not currently living in “normal times.” Pre-market futures were down prior to the new economic prints, and they have held there: the Dow is -100 points at this hour, the S&P 500 -20 and the Nasdaq is -75 points.

Retail Sales for the month of January bounced back in a big way, after posting a weaker-than-expected holiday season: +3.0% last month was well ahead of the +1.9% expected and the -1.1% from the prior month. This is the best print since October; four of the past six months have posted negative monthly Retail Sales numbers. Healthy employment and better real earnings have boosted consumer confidence of late.

Stripping out lumpy auto sales per month, this number trickles to +2.3% — still strong, and more than double the +0.9% expected. December’s -0.9% shows how far retail has ramped up in a month. This is actually a monthly high going back to March 2021, when Covid vaccines were starting to loosen up the pandemic lockdown. Ex-autos and gas was an even better figure: +2.6%, nearly three times higher than the +0.9% anticipated.

The Control group, which augments these figures and gets sent higher up the economic “food chain” (utilized as a preferred metric by the Fed, among others), came in at +1.7% for the month of January, well ahead of the +1.0% analysts had been looking for. This is the strongest read in exactly a year, and asserts the narrative that the American consumer hasn’t depleted its disposable income just yet.

The Empire State Manufacturing survey for February also improved upon expectations, although it remains a negative number: -5.8, up from the -19 expected on the street. This represents a tremendous upswing from the -32.9 we say reported for January. This is the best number for monthly goods-producing in New York State since November of last year, which at +4.5 was the last time this index registered a positive number.

We know why the pre-market is responding the way it is to this robust economic news (although negative Empire State numbers aren’t exactly “robust”): this means the Fed will be keeping interest rates higher for longer, which they’ve been saying for about a year now. Currently, expectations are for a peak Fed funds rate of between 5.0-5.25% (although more estimates are ticking up to 5.25-5.50% recently), without a pivot anywhere in sight.

Then again, given the choice between higher interest rates and a healthy economy or loosening monetary policy to assist the economy out of recession, most of us would choose the former. It does mean the era of cheap money is over for the foreseeable future, but if we’re honest we’ve already known this for quite some time.

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