Rising Debt And Falling Spending Are Troublesome

It’s probably a good thing the government partially shut down in December. It delayed the exposure of some dreary economic updates in the face of a falling stock market.

Retail sales figures for the important holiday month were finally updated last week, and they were terrible. Excluding auto and gasoline, sales were expected to rise by 0.4% but dropped 1.4% on the month. That was the sharpest drop since September 2009 when the U.S. economy was in a recession.

Traders sold stocks in reaction to the dismal sales figures. But the hope of a trade deal with China kept stocks afloat and they ended the day on a mixed note. Treasury bond yields dropped slightly before steadying. At the time of writing, long-term bonds were still hovering around 3%.

Still catching up…

We still don’t know when the updated retail sales figures will be released for January, February, or March.

I’m guessing the Census Bureau and the Bureau of Economic Analysis (BEA) will be all caught up with the delayed economic reports by the end of next month.

The BEA will update the fourth quarter 2018 gross domestic product (GDP) on February 28. It was originally scheduled for January 30, and it will now include the first and second estimates of the data.

And those dismal December retail sales figures will surely impact fourth quarter GDP. I’ll be watching for that release and considering the impact it could have on the markets.

Growth rate adjusted way down…

Last Thursday, the Atlanta Federal Reserve’s GDPNow forecast was adjusted from a fourth-quarter growth rate of 2.7% down to 1.5% after retail sales were factored in. Although it’s not an official forecast, it’s still worth looking to for running estimates. And with this forecast… ouch!

Remember, consumer spending drives nearly two-thirds of GDP. And retail sales make up about half of all consumer spending. So, December’s dismal retail sales will have a major impact on fourth-quarter GDP.

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Gary Anderson 6 months ago Contributor's comment

There is doom and gloom because a lot of these folks are tied to student loans, not just higher taxes. So it is a double down effect.