This Week's US Economic Data and a Possible Slowdown

The markets will likely remain fixated on the risk of slow global and US economic growth as the March 1 tariff deadline approaches.  This week's US economic data may very well keep the slowdown debate open, based on consensus estimates.    

Expectations for real-side US economic data are mixed -- modest Retail Sales and strong Manufacturing Output.  Consensus sees only a 0.2% m/m gain in December Ex Auto Retail Sales, below the +0.3% prior 3-month average.  Some of the softness could reflect lower gasoline prices.   So, what will be more important is whether Ex Auto/Ex Gasoline Retail  Sales climb by less than their prior 0.4% 3-month average.  Prior months' revisions could be important, as well.  In contrast, consensus looks for a decent 0.4% m/m increase in January Manufacturing Output (part of Industrial Production).  This would be slightly above the 0.3% Q418 average.   

Inflation prints are not expected to be problematic.  Consensus estimates of 0.1% m/m Total and 0.2% Core CPI for January would pull down their y/y's.  The y/y would drop to 1.5% from 1.9% for Total.  It would slip to 2.1% from 2.2%, according to consensus.  But, a lower y/y for the Core CPI is possible -- a m/m print of 0.16-0.18% (rounding to 0.2% prints) would pull down Core's y/y to 2.0%.  On the other hand, a 0.3% m/m print for Core CPI cannot be ruled out, as start-of-year price hikes could dominate -- as happened last year.  For example, a number of pharmaceutical companies announced price hikes this month.  The y/y would be steady at 2.2% in this case.  However, a high print should be quickly dismissed by the markets, since it could be interpreted as temporary and, as a result, the Fed is unlikely to be influenced by it.

The most up-to-date measure of US economic activity, as always, will be Unemployment Claims data.  They have been on the high side in the past 2 weeks.  Consensus looks for a gradual unwinding to 225k Initial and 1.720 Mn Continuing in this Thursday's report -- still high but too soon to be conclusive regarding a slowdown.  Until Initial moves below the 219k Q418 average, they will add to the risk of slower economic growth in Q119. 

It is possible the recently high levels of Initial and Continuing Claims could be catch-up from processing delays caused by the government shutdown or could be filings by people impacted by the shutdown.  In either case, the high levels should unwind in the next couple of reports -- and argue against a significant (if any) slowdown in Q119 economic growth.  

                                            Unemployment Claims (level)
                                   Initial                                   Continuing
Oct18                          214k                                     1.635 Mn                        
Nov                             222                                       1.668
Dec                             222                                       1.707

Q418                          219                                         1.670

Jan19                          220                                         1.741
Jan 26 wk                    253                                         1.736
Feb 1  wk                    234                                          na