LIVE MARKETS-Cold front economics: Retail sales, employment costs, import prices, NFIB

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COLD FRONT ECONOMICS: RETAIL SALES, EMPLOYMENT COSTS, IMPORT PRICES, NFIB

On Tuesday, an ice-cold bucket of indicators was dumped over investors' heads, headlined by a surprisingly soft retail sales report from the Commerce Department.

Receipts at U.S. retailers USRSL=ECI were unexpectedly flat in December, showing an abrupt deceleration from November's 0.6% increase and falling well shy of the 0.4% consensus.

Digging below the headline, spending across nearly every segment was listless. Department store receipts dropped 0.7% in the crucial holiday shopping month, and a 0.1% dip in food and drink services painted a picture of a consumer who preferred staying at home to going out. The 0.3% gain at gasoline pumps was offset by the 0.2% drop in autos/parts.

Non-store retail sales, which include online shopping, inched 0.1% higher.

The "control" figure, which excludes autos, gasoline, building supplies and food services - and is most closely correlated with the personal expenditures element of GDP - dipped 0.1% in defiance of the 0.4% gain analysts expected.

"Consumer spending has finally caught up with consumer sentiment, and not in a good way," writes Chris Zaccarelli, chief investment officer at Northlight Asset Management. "(The report) could be the canary in the coalmine that signals a more serious slowdown."

Separately, the Labor Department released its employment cost index USEMPC=ECI, which rose by 0.7% in the fourth quarter on a quarterly annualized basis, a shade cooler than the 0.8% economists anticipated.

"Compensation costs ... rose at the slowest pace in over four years in Q4," notes Matthew Martin, senior economist at Oxford Economics, who adds "The ECI will rise at a slower pace in the coming quarters as well."

"Workers have less confidence in testing the labor market, as evidenced by an increasingly pessimistic view of job availability and a declining quits rate, while household inflation expectations have tumbled."

This - in combination with recent JOLTS, jobless claims, ADP and Challenger layoffs - is prologue to the Labor Department's January employment report due on Wednesday (the wonky timing an echo-effect from last fall's government shutdown), which is expected to show the U.S. economy added 70,000 jobs this month, with the unemployment rate holding firm at 4.4%.

Moving on, the cost of goods and services imported to the United States USIMP=ECI was unchanged in December on both monthly and annual bases, according to the Labor Department.

While import prices (which exclude tariffs) are the coolest U.S. inflation indicator in the business, they are also subject to things like foreign economies and currency exchange rates.

Finally, the mood among small business owners in the U.S. cooled a bit last month, according to the National Federation of Independent Business (NFIB).

NFIB's Optimism index USOPIN=ECI shed 0.2 points to land at 99.3, or 1.3 points north of its 52-year average.

Digging deeper, seven of the 10 subcomponents deteriorated, but expected real sales improved by a healthy 6 points.

On the other hand, the uncertainty index also jumped, rising 7 points, based primarily on respondents' hesitancy over whether now is a good time to expand their business.

The three "most important problems" were taxes, labor quality and inflation, in that order.

Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, points out that the survey's dwindling response rate suggests "its numbers ought to be treated with caution."

"That creates a lot of room for non-response bias, as struggling firms are more likely to drop out of the sample," Allen says, adding that "The NFIB survey’s major components often have been much stronger during Republican administrations than Democratic ones, suggesting political bias might be flattering the results currently too."

Indeed, the NFIB is a politically active membership organization whose PAC skews heavily Republican, according to the Center for Responsive Politics/opensecrets.org.

(Stephen Culp)

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