Retail sales slumped in January, delivering a bigger-than-expected decline. This morning’s update on weekly jobless claims only added to the disappointment, albeit mildly so. New filings for unemployment benefits increased a bit more than forecast, rising 8,000 to a seasonally adjusted 339,000. The prevailing theory among the optimists is that an unusually harsh winter is temporarily weighing on economic activity. That’s a narrative that’s a bit easier to embrace at the moment as a powerful winter storm continues to move up the Eastern seaboard of the US this morning.
Only time will tell if warmer weather will revive the macro numbers in the weeks and months ahead. Meantime, let’s consider where we stand with today’s updates, starting with retail sales. Spending dropped 0.4% in January vs. the previous month and December’s moderate gain has now been revised down to a slight loss. The net result: retail sales for the past two months suffered their first back-to-back run of red ink since mid-2012.
The bigger concern is the decelerating pace of year-over-year growth. Retail spending advanced just 2.6% for the year through January—the weakest comparsion since late-2009. For now, the trend looks troubling. Perhaps it’s only a winter slump that will soon reverse. But keep in mind that the year-over-year trend in personal income is looking sickly these days too. Meantime, payrolls are under pressure in terms of recent monthly comparisons. If Old Man Winter’s inevitable fade is the antidote, there’s a growing list of indicators lining up for a dose of spring’s renewal.
As for jobless claims, today’s numbers don’t look as troubling as the numbers for retail, but it’s fair to say that there’s not much to inspire the bullish view either for this leading indicator. New filings for unemployment benefits have been stuck in a range lately for the weekly changes. Unfortunately, the year-over-year comparison now looks softer in today’s update. Claims fell a thin 3% last week vs. the year-earlier level, the weakest decline in two months.
It’s too soon to know if we’re seeing noise or something darker in the numbers. Much depends on how the next round of updates compares, starting with tomorrow’s January report on industrial production and next week’s news on housing starts. The latest turbulence may be a transitory threat that will be resolved by the changing of the season. But no one really knows at this point if there’s a big thaw waiting in the wings.
In any case, the margin for future disappointments is running out of road. We’ll know soon enough if we’re truly at turning point for the business cycle. At this stage the most you can say is that the risk of trouble is a bit higher than it was a month ago. But it’s still premature to yell fire in macro’s theater.