January 12, 2018
It's Friday and that means it's time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don't worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let's take a look at this week's big headlines…
Consumer Credit Report
On Monday, the Federal Reserve Board of Governors published November's Consumer Credit Report. Headline consumer credit grew $27.9 billion to a seasonally adjusted $3.83 billion in November, the largest gain in 16 years. Undoubtedly, the strong rise in retail sales seen in this past holiday season increased the amount of borrowing among Americans. With a happier consumer willing to spend more money, it is natural to see a rise in consumer borrowing to finance those purchases.
The sharp pickup is largely attributable to revolving credit, which if you recall, is made up of mostly credit card loans. Revolving credit rose at a 13.3% annual pace in November. Non-revolving credit, which includes student and auto loans, increased at a 7.2% annual pace. With individuals and businesses continuing to replace vehicles destroyed by natural disasters earlier last year, it is no surprise to see non-revolving credit continue to rise.
Some market observers have cautioned that the auto numbers may weaken once the need to make hurricane-related purchases diminishes. But overall, this report is a clear indication that Americans are feeling more confident about emptying their wallets and pulling out their credit cards.
On Wednesday, the Commerce Department reported that after falling 0.5% in October, U.S. business inventories rose 0.8% in November. Total inventories of merchant wholesalers, a major component of GDP, jumped 0.8% from October to $611.0 billion. Results are slightly higher than the Commerce Department's preliminary estimate of a 0.7% rise in total inventories.
Looking deeper, business sales surged 1.5% in November, after rising 0.8% in October. At November's pace, it would take 1.24 months for businesses to clear their shelves. Overall, the report is an encouraging rebound from the prior two months and suggests that, contrary to earlier belief, inventory investment will help boost economic growth in the fourth quarter.
In Friday's report from the Commerce Department, retail sales jumped 0.4% in December, consistent with economists' estimates for a 0.4% increase, but short of November's upwardly revised 0.9% increase in retail sales. What's encouraging is that compared with the year ago period, retail sales are up 5.4%.
December's retail sales were boosted by a 1.2% pickup in purchases at gardening and building material stores. I should also note that core retail sales, which exclude cars, gas, building materials and food services, were up 0.3% in December. While the momentum has slowed from November, this is still a solid report. Plus, the sharp upward revision to November's data is very bullish. And with the passage of corporate tax reform, I expect spending to get a nice boost in the coming quarters.
That's all I have for you this week. I'll be in touch again next week with the latest ratings out of Portfolio Grader.
Have a great weekend,