A Pair Of Winners: Jobs And Retail Sales

Jobless claims dropped substantially last week, near the lowest level in almost five years. Meanwhile, retail sales rebounded in November. In short, we have two more economic updates that support the case for expecting modest economic growth in the near future.

Let’s look at both reports in more detail, start with consumer spending. Retail sales rose 0.3% last month, modestly below the rate projected by economists overall. Nonetheless, today’s report shows a) there’s a post-Hurricane Sandy rebound factor juicing the numbers; and b) retail spending isn’t collapsing, as some of the more pessimistic analysts have been predicting. In sum, a decent report and one that continues to support the case for expecting modest growth in the economy overall.

Stripping out gasoline sales, which tumbled 4.0% in November, puts retail ex-gas up by a much-stronger 0.8% last month. That's a reminder that consumers are spending on discretionary items. A strong month for auto sales is one reason, and the holiday shopping season doesn't hurt either.

More importantly, the annual trend is holding up as well. Retail sales rose 3.7% last month vs. the year-earlier level. A drop below this rate into the low-3% range would be a warning sign for the business cycle, but there’s still a comfortable margin in today's numbers over that zone.

The details look pretty solid, says Ryan Sweet, a senior economist at Moody’s Analytics. The consumer is continuing to support the recovery, which is important because identifying the sources of growth is becoming increasingly difficult. The burden is really starting to fall on the consumer.

For now, the beast is holding up his share of the burden, which means that another data point for the November profile of the economy remains on the side of growth.

Jobless claims certainly look better these days too. Last week’s tally of new filings for unemployment benefits dropped by 29,000 to a seasonally adjusted 343,000. That’s just a hair over the 342,000 mark set for the week through October 6, the lowest since early 2008. For four weeks running, claims have retreated, all but confirming that the early November surge was a storm-related distortion.

If there’s a reason to be cautious in today’s jobless claims report it can be found in the annual change for the unadjusted data. In contrast with the weekly numbers, claims fell a slight 1.6% last week vs. the level from a year ago. That’s a bit too close to zero for comfort, although one data point doesn’t mean much. A series of repeat performances in the weeks ahead, however, would be another matter.

For now, however, the data continues to support a forecast for slow growth in the economy overall. I said as much on Monday, with the update of The Capital Spectator Economic Trend Index, and today’s numbers strengthen the econometric case for arguing that recession risk is still low, based on the available numbers. December and beyond are wide open for debate, of course, but the odds are rising for expecting that November will go into the history books as another month of expansion.