Heads up! The U.S. economy printed a dismal retail sales report, which wasn’t so much of a surprise given the slack in the labor market. After all, the non-farm payrolls reports for the past couple of months missed expectations due to extreme weather conditions.
For the month of January, headline retail sales slipped by 0.4% while the core version of the report showed a flat reading. To make things worse, the previous month’s report was downgraded to show a 0.1% decline in headline retail sales. Not even the November 2013 figures were able to escape downward revisions!
Components of the latest retail sales report showed that much of the weakness can be attributed to declines in automobile sales. Another major factor that dragged spending down was the unusually cold weather in December and January, which forced most people to stay at home and left some retailers and restaurants no choice but to temporarily close shop.
Online shopping wasn’t enough to make up for the downturn in actual store spending, as the winter storms halted deliveries. It looks like Ned Stark’s famous catchphrase “Brace yourself. Winter is coming.” also applies to consumer spending and probably to overall economic growth as well!
With that, economic experts slashed their GDP growth forecasts for the last quarter of 2013. Bear in mind that the initial official estimate currently stands at 3.2% and many are expecting to see a significant downward revision to as low as 2.5%. GDP estimates for the first quarter of this year were also downgraded, as extreme cold conditions persist in several states.
However, not a lot of market watchers are expecting to see any changes in the Fed’s monetary policy bias, as Yellen recently confirmed that the U.S. central bank will push through with its taper plans. She also pointed out that the FOMC isn’t too concerned about the seasonal slack in hiring and that policymakers will be waiting for more data points to determine whether the U.S. economy is really slowing down or not.
Although the Greenback instantly dropped after the bleak retail sales release, the U.S. currency might be able to enjoy a bit more support in the longer term. After all, the Fed’s unwavering decision to keep reducing stimulus sets the U.S. central bank apart from other central banks that are looking to ease further. In addition, the looming meltdown among emerging markets could keep risk appetite in check and the safe-haven U.S. dollar afloat.
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