Dynamic Capital Economic Data Points to Improved Demand - Dynamic Capital

Retail sales in January here in the US beat the expectations of most economists in January as households bought electronics and a range of other goods, showing domestic demand has remained steady and should boost overall economic growth throughout the first months of the year.  Data from retailers showed the biggest price increase in nearly four years, and manufacturing output steadily rising – a clear result of the increased demand and another confirmation the economy is on the right track.  These reports came a day after Janet Yellen, Chair of the Federal Reserve, indicated she will be raising interest rates either next month or in June, with the improved results making the former a stronger possibility, since they have been depressed for an extended period and she has already expressed her desire to raise them as soon as possible.

Senior analysts and experienced investors across the board are seeing momentum in the economy to begin the year, and the reports of Wednesday morning are only adding to that momentum as they will likely send the stock market up in the long term, barring any external events holding it back.  The Department of Commerce stated retail sales were up 0.4% in January, and the revised numbers from December’s retail sales show an increase of 1.0%, nearly double the preliminary estimate of 0.6% – the January sales being especially good news since usually sales take a dip to start the year due to huge spending during the holiday season.  Sales rose overall in the economy despite motor vehicles motor sales suffering the largest drop in ten months.

When a comparison is made between January 2017 and January 2016, retail sales are up a whopping 5.6%, signaling this year is on track for a much higher GDP than last year.  The core retail sales industries (all excluding autos, gas, building materials and food) correspond most closely with the consumer spending portion of overall gross domestic product, so the decrease in auto sales does not have economists very worried since most other factors are pointing in a positive direction.  At least in part because of the good economic news, the dollar has risen to a one month high versus a basket of the world’s strongest currencies, while so far, the stock market has remained relatively flat.

During the fourth quarter of last year, the economy grew at an annualized rate of 1.9%, however the Fed is currently forecasting annualized growth of 2.7% for this quarter meaning their outlook is that the economy is off to a booming start under the Trump administration.  In a separate report, the Department of Labor reported the CPI (consumer price index – a widely accepted measure of inflation) surged 0.6% in January, the largest increase since early 2013 after gaining half that the previous month, a further indicator that demand is on the rise, since demand is one of the leading factors affecting pricing.  In the last 12 months, the CPI increased a total of 2.5% – the biggest year over year increase since early 2012 – after rising 2.1% on a year over year basis in December, meaning the trend is moving upwards, and barring any significant external events providing yet another data point supporting an interest rate increase by the Federal Reserve next month.