Retail Sales Show U.S. Consumer Keeping Foot on Growth Pedal

(Bloomberg) -- U.S. retail-sales figures on Friday signaled consumer spending, the biggest part of the economy, is poised to drive another quarter of strong growth while other segments face headwinds.

The value of overall sales rose 0.2 percent in November, topping forecasts, after an upward revision to the prior month, Commerce Department data showed. The so-called control group subset, which some analysts use to gauge underlying consumer demand, climbed 0.9 percent, the most in a year and more than double projections.

Americans took advantage of lower fuel prices and Black Friday sales that kicked off the holiday-shopping season last month, setting up household consumption for a stronger-than-expected quarterly increase following what were already the best back-to-back gains in four years. That will help overcome less upside from another part of the economy: manufacturing output stagnated in November following a drop.

“It unquestionably points to a consumer that continues to be upbeat and happy to spend money,” said Ward McCarthy, chief financial economist for Jefferies LLC.

Consumption in the fourth quarter will “again be very strong and a source of growth,” he said. “Once we move past this, we’re not going to see consumer spending quite as strong, but consumer fundamentals are really good.”

Factory output was unchanged last month while the prior month’s reading was revised to a decline from a gain, Federal Reserve data showed Friday. The results missed the Bloomberg survey median forecast for a 0.3 percent gain. Total industrial production increased 0.6 percent, helped by growth in mining and a cold-weather boost to utilities.

While the economy’s pace is still projected to moderate in the final three months of the year from 3.5 percent in the third quarter, retail sales alleviated some concerns that growth is weakening even more.

Analysts at Macroeconomic Advisers on Friday raised their tracking estimate for the annualized pace of gross domestic product gains to 2.6 percent from 2.1 percent. The Atlanta Fed’s GDPNow tracker moved to 3 percent from last week’s 2.4 percent, while Barclays Plc boosted its forecast to 2.9 percent from a prior estimate of 2.5 percent.

Even so, a gauge of expectations for a U.S. recession in the next 12 months has increased to 20 percent from 15 percent in November, a Dec. 7-13 Bloomberg survey of economists showed on Friday. The last reading at that level was in mid-2017.

Outside the U.S., signs of cooling continue to mount: Data from China earlier Friday showed the world’s second-largest economy slowed again in November. Industrial production growth decelerated to 5.4 percent from a year earlier, below all 38 economists’ estimates. Retail sales rose 8.1 percent from a year earlier, the slowest pace since 2003.

In financial markets, U.S. stocks erased a weekly gain and Treasuries rose as mounting concern over the health of the global economy overshadowed positive trade developments and signs of strength in the American consumer.

“We expect to see continued softening in the pace of manufacturing growth in the coming year, as both U.S. and global growth slow and the dollar remains a headwind for exporters,” Sarah House, senior economist at Wells Fargo Securities LLC, said in a note.

The retail sales gain also reinforces traders’ bets that the Federal Reserve will lift interest rates next week for the fourth time this year. The figures may support the case for further tightening in 2019 after investors and economists marked down their projected paths for borrowing costs. While retail sales were robust, they only account for less than half of total household purchases.

The factory production results, which missed the Bloomberg survey median forecast for a 0.3 percent gain, are nonetheless in line with the view that the industry may see some cooling ahead while still growing at a pace that supports economic growth. Manufacturers also face headwinds including the trade war with China and rising borrowing costs, though the tight job market will underpin demand.

“While some tailwinds will remain in place in 2019, they are expected to weaken next year, and new headwinds including trade worries, slower global activity, rising input costs from labor and capital, and higher interest rates will restrain activity,” said Gregory Daco, chief U.S. economist at Oxford Economics.

In the retail report, nine of 13 major categories showed increases in November. The nonstore category, which includes online shopping, jumped 2.3 percent, the most in a year. Other solid gains were recorded at furniture and home furnishings stores, electronics and appliance vendors and health and personal care stores.

Amazon.com Inc., the biggest U.S. online retailer, said Cyber Monday last month -- following the Nov. 22 Thanksgiving holiday -- was again the biggest shopping day in company history. Consumers spent a record $7.9 billion this year, jumping 19 percent from the prior year, according to Adobe Analytics, which measures 80 of the top 100 U.S. online stores.

--With assistance from Chris Middleton and Catarina Saraiva.

To contact the reporters on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net;Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns

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