Economic Preview: Economy capped off strong 2018 with big holiday season, but we won’t know for sure due to government shutdown
The holiday shopping season looks to have been one of the best in years in another manifestation of the economy’s firm backbone, but don’t expect to hear about it this week.
The partial government shutdown that began Dec. 22 has forced a delay in key economic reports. The newest victim might be Wednesday’s scheduled release of U.S. retail sales in December. The latest snapshot on home construction is also at risk.
The good news is Wall Street and the Federal Reserve aren’t flying entirely blind.
Another pair of reports in past two weeks showed that job creation soared in December and wages rose, but inflation fell.
Read: U.S. gains 312,000 jobs in 10-month high that shattered Wall Street forecasts
Also Read: Consumer inflation falls for first time in 9 months due to lower gas prices
It’s a goldilocks moment for the U.S. economy, putting to rest fears of an imminent recession that helped sink the stock market in December.
Senior Fed officials have even seen fit to declare they can “patient” on interest rates, a signal they might not raise them as much as investors previously believed. Investors reacted by triggering a five-day stock rally.
Read: Powell says Fed is ‘watching and waiting’ on interest rates
“The market wants the economy that gives us higher rates, they just don’t want higher rates,” quipped chief economist Richard Moody of Regions Financial.
The reports on hiring and inflation came courtesy of the Labor Department, a part of the government that has stayed open. Retail sales and new home construction come from a Commerce Department that remains closed.
Even if the standoff in Washington ends in the next several days, the experience from past shutdowns suggest a one- or two-week delay before postponed economic reports are made public.
It might not matter much in the case of retail sales. Holiday-season sales registered the biggest gain in six years, led by surging orders at online stores, according to Mastercard. Other private surveys show similarly strong sales.
The one impediment to a strong reading in the government’s retail report: Falling gas prices.
“Sliding gas station receipts will gouge retail sales in December, masking an otherwise merry holiday shopping season,” said senior economist Sal Guatieri of BMO Capital Markets.
The housing industry is a different matter. Sales of new and existing homes as well as new construction slowed in the second half of 2018 as mortgage rates shot to the highest level in years.
Rates have fallen sharply in the past few months, however, and investors are keen to see if that’s led to an improvement in the housing market. They’ll have to wait longer to find out.
In the meantime, Wall Street will just have to sift for fresh clues on the economy from secondary sources. Regional manufacturing surveys from the New York and Philadelphia regions are on tap, and if they mirror a similar national survey, they are likely to soften in January.
Read: Bad omen for economy? ISM survey posts biggest drop since Lehman crisis in 2008
Thee first signs of deterioration in the labor market, meanwhile, are like to come from new claims for unemployment benefits. Just don’t expect it anytime soon.
These so-called initial claims are still near a 50-year low — more evidence that the labor market and the economy are just fine.