Next Move For The Dollar

The US government shutdown is now 27 days old and shows no sign of letting up. According to Oxford Economics, the shutdown will hurt GDP growth by 0.2% if it continues until the end of the month and 0.6% if it lasts the whole quarter. The longer the shutdown lasts, the larger the multiplier, so the impact could be larger than 0.6%. The scary aspect for government workers is if the shutdown lasts until January 25th, workers will miss their second paycheck. This should be a cautionary reminder for everyone to have at the very minimum a few months of expenses saved in case of an emergency.

Because of the government shutdown, the business inventories and retail sales reports didn’t get released. The retail sales report was from December which is very important because it includes holiday sales. Some retailers have said sales growth dwindled at the end of the holiday shopping season. We will need to wait until the shutdown ends to see how accurate that is.

We are now left with alternative data from private companies. The Redbook same store sales report signaled retail sales growth was strong in December. However, in the latest report for the week of January 12th, growth slowed sharply from 8.9% to 6.7%. This is still decent growth, but it’s not ideal in rate of change terms. It is the weakest report since November 24th. Month to date sales versus the last month were down 1.7% which is the weakest reading since February 2018.

The chart below shows another estimate of retail sales growth by a private company. As you can see, the Bank of America internal data is plotted against retail sales ex-autos.

(Click on image to enlarge)

Source: Bank Of America

The two lines seem to move in tune with each other. This data suggests retail sales growth is slowing. Keep in mind, this data is volatile even though it is the 3-month moving average.  

Cass Freight Index Weakens Further

Given the tough comparisons we mentioned in a previous article, it’s no surprise that the Cass Freight index’s growth slowed in December. December 2017 was a record high for the index. The index actually declined 0.8% year over year which was the sharpest decline in 24 months. As you can see from the chart on the left, this monthly report led to quarterly growth of about 2%. This implies GDP growth will be lower in Q4. The latest Atlanta Fed Nowcast shows GDP growth will be 2.8%.

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