- No major economic releases
- National Federation of Independent Business Small Business Optimism Index, 7:30 a.m.
- Esther George, President of the Kansas City Federal Reserve (voter), speaks, 11:30 a.m.
- Treasury Budget, 2 p.m.
- Charles Plosser, President of the Philadelphia Fed (non-voter), speaks, 7:30 p.m.
- Retail Sales, 8:30 a.m.
- Import and Export Prices, 8:30 a.m.
- Business Inventories, 10 a.m.
- Energy Information Administration Petroleum Status Report, 10:30 a.m.
- James Bullard, President of the St. Louis Fed (voter), speaks, 11:10 a.m.
- Jobless Claims, 8:30 a.m.
- James Bullard, President of the St. Louis Fed (voter), speaks, 12:50 p.m.
- Empire State Manufacturing Survey, 8:30 a.m.
- Treasury International Capital (TIC report), 9 a.m.
- Industrial Production, 9:15 a.m.
- Sandra Pianalto, President of the Cleveland Fed (non-voter), speaks, 9:50 a.m.
- Consumer Sentiment (University of Michigan measure), 9:55 a.m.
There are a number of economic events that will capture my attention this week. Before we get to today's focus, retail sales, let me mention the Federal Reserve speakers this week -- and in particular, Esther George, the president of the Kansas City Fed. This year, she has a vote on the Fed's policymaking group, the Federal Open Market Committee.
She isn't too keen on lots of quantitative easing, at least according to past speeches she's made, and I want to see whether she dials her stance up or down in this week's speech. She dissented at the last meeting, as she "was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations," according to the FOMC's statement following its meeting last month. (By the way, George's predecessor at the Kansas City Fed, Thomas Hoenig, was notable for his frequent dissents.)
Even if she dissents from further Fed easy-money policies, she might not sway the whole panel. Still, her views might be instructive nonetheless, especially in juxtaposition with the other Fed speakers this week. But remember that, of this week's speakers, besides George, only St. Louis Fed President James Bullard has a vote.
Now, on to retail sales. The report covers January, which is the first month after the payroll tax rate reverted back up to its original level -- to 6.2% from the prior 4.2%, up to a maximum income level of $113,700. Those with incomes above $200,000 for single filers, or $250,000 for joint filers, face an additional 0.9% levy to fund Medicare. There are other tax changes and increases, too, especially for higher-income Americans and some investors.
Suffice it to say that many people will be paying more in taxes this year, and not just those who are most affected by payroll taxes. Plus, gas prices have risen of late, particularly in California. So it's reasonable to assume that these factors will constrain retail numbers, and the International Council of Shopping Centers said some retailers did report softer sales as a result.
On the other hand, many companies paid special dividends in December, and bonuses to some employees, in order to front-run tax increases this year. There is some anecdotal evidence that sales were stronger earlier in January than they were later in the month, reflecting the 34.3% surge in dividend income in December from the month before, per the Personal Income and Outlays report. Also, 10 states increased their minimum-wage rates in 2013.
On balance, this combination of somewhat-offsetting forces seems to have bolstered sales -- so far, at least. In January, for more than 20 companies tracked by Retail Metrics, same-store sales surged 4.5% vs. January 2012. That's the biggest year-to-year gain since September 2011. Macy's (M), Gap (GPS) and Target (TGT) were among the U.S. retailers to post bigger monthly same-store sales gains, and when you exclude drug stores (which are included in Wednesday's Retail Sales report, mind you), the sales gain was 5.1% from 12 months ago.
In all, the dividend and bonus payments drove December aggregate personal incomes 2.6% higher than November levels. So, in this week's January retail-sales report, we may see these effects offer more support to the numbers than in the coming months.
After all, in the consumer-confidence report from the Conference Board, the "expectations" component plummeted over the past several months -- and this tends to be more predictive of consumer spending than the headline. In October, the reading for expectations was 84.0. The metric then fell to 68.1 in December before plunging again, to 59.5, in January.
But the caveat to consumer-confidence measures is that people don't always behave consistently with how they feel. For example, in spite of the drop in consumers' expectations in the consumer-confidence survey, the metrics on buying plans, of cars, houses and appliances have been mixed. In January, 10.1% of those surveyed said they planned to buy a car in coming months, down from 12.2% in December; but those planning to buy an appliance increased to 47.7% from 46.1%.
In coming months, we'll be able to see how confidence issues play out in the face of higher taxes, along with rising gas prices. In the meantime, for this week's report, the consensus expectations call for January retail sales to rise by 0.3%. Since it's a monthly figure, this type of growth wouldn't be half bad -- at least before we take price changes into account.
As for those rising gas prices, remember that the retail-sales report is not adjusted for inflation. Be sure to strip out gasoline, given price increases in the past couple months. (In fact, I also strip out autos and building materials, putting the focus purely on so-called "core" retail sales -- that is, what people buy during more mundane shopping trips.) In this way, you can get a better sense of consumers' behavior, and not just their attitudes or predictions on how they might react to lower take-home pay.