WASHINGTON (MarketWatch) — If the U.S. economy is to continue to chug along, consumers will have to take the lead.
The retail-sales report for January, which tops a busy week of data, will show whether consumers are still spending at elevated levels. Higher spending in the late stages of last year helped boost growth entering 2012 and gave fresh hope that the economy has turned a corner.
The closely followed retail report will be issued Tuesday morning. Also on the docket are reports on manufacturing, home construction and inflation. In addition, the Federal Reserve will release details of its last big meeting to discuss the economy.
Economists surveyed by MarketWatch predict retail sales jumped a sharp 1% last month, which would mark the biggest increase since September.
Retail spending minus the auto sector, whose sales have been surging, is expected to rise 0.7% Read MarketWatch Economic Calendar.Consumer spending accounts for more than two-thirds of U.S. economic growth, so such a large increase would bode well for the first quarter and perhaps beyond.
When people buy more goods and services, businesses add extra workers to meet the rise in demand, more income becomes available for Americans to spend, and the cycle repeats itself.
Stronger retail sales helps explain the increase in hiring over the past six months.
“The labor market will keep coming back and output will rise,” said Steven Leslie of the Economic Intelligence Unit. “They will gradually lift the other parts of the economy.”
Yet some economists question whether the retail sales report in January will be as strong as forecast. Moody’s Analytics, for example, projects that sales will rise 0.3% overall and 0.1% excluding autos.
Ryan Sweet of Moody’s notes that higher spending in the final months of 2011 was largely financed by debt. Consumers reduced their savings to pay for new cars and other goods.He expects a pullback in spending as consumers pay off their holiday bills and rebuild their savings.
“We are setting up for a weak quarter of consumer spending,” Sweet said.
The effect on the economy if that happens, however, might not be as bad if manufacturers continue to show strength. Regional manufacturing reports from the New York and Philadelphia Federal Reserve banks are expected to hold steady in February at a level that suggests additional growth.
“Manufacturing is holding up pretty well,” Sweet said. “Those surveys are good barometers of changes in business confidence.”
Still, investors are watching to see if the deteriorating economy in Europe, major destination for industrial exports, starts to hurt U.S. companies. A Greek default could also be the trigger for global economic disruption.
Another worry is rising tensions with Iran, which has threatened to block a key body of water through which much oil is shipped. The prospect of rising oil prices CL2H
-0.83%
, which are hovering near $100 a barrel, could also sap the economy.
“The biggest dangers to the U.S. economy are external,” said Leslie, pointing to the situations in Greece and Iran.
That’s not to say everyone expects the U.S. economy to roar ahead even if it skirts international potholes. While 243,000 new jobs were created in January, according to preliminary government data, the six-month average is a smaller 167,000. And unemployment remains stubbornly high at 8.3%.
“The labor market is healing but we have a long way to go. You don’t want to put much stock into one month of data,” Sweet said. “We want to see 250,000 jobs a month become the norm before we change our outlook.”
marketwatch.com
The retail-sales report for January, which tops a busy week of data, will show whether consumers are still spending at elevated levels. Higher spending in the late stages of last year helped boost growth entering 2012 and gave fresh hope that the economy has turned a corner.
The closely followed retail report will be issued Tuesday morning. Also on the docket are reports on manufacturing, home construction and inflation. In addition, the Federal Reserve will release details of its last big meeting to discuss the economy.
Economists surveyed by MarketWatch predict retail sales jumped a sharp 1% last month, which would mark the biggest increase since September.
Retail spending minus the auto sector, whose sales have been surging, is expected to rise 0.7% Read MarketWatch Economic Calendar.Consumer spending accounts for more than two-thirds of U.S. economic growth, so such a large increase would bode well for the first quarter and perhaps beyond.
When people buy more goods and services, businesses add extra workers to meet the rise in demand, more income becomes available for Americans to spend, and the cycle repeats itself.
Stronger retail sales helps explain the increase in hiring over the past six months.
“The labor market will keep coming back and output will rise,” said Steven Leslie of the Economic Intelligence Unit. “They will gradually lift the other parts of the economy.”
Yet some economists question whether the retail sales report in January will be as strong as forecast. Moody’s Analytics, for example, projects that sales will rise 0.3% overall and 0.1% excluding autos.
Ryan Sweet of Moody’s notes that higher spending in the final months of 2011 was largely financed by debt. Consumers reduced their savings to pay for new cars and other goods.He expects a pullback in spending as consumers pay off their holiday bills and rebuild their savings.
“We are setting up for a weak quarter of consumer spending,” Sweet said.
The effect on the economy if that happens, however, might not be as bad if manufacturers continue to show strength. Regional manufacturing reports from the New York and Philadelphia Federal Reserve banks are expected to hold steady in February at a level that suggests additional growth.
“Manufacturing is holding up pretty well,” Sweet said. “Those surveys are good barometers of changes in business confidence.”
Still, investors are watching to see if the deteriorating economy in Europe, major destination for industrial exports, starts to hurt U.S. companies. A Greek default could also be the trigger for global economic disruption.
Another worry is rising tensions with Iran, which has threatened to block a key body of water through which much oil is shipped. The prospect of rising oil prices CL2H
-0.83%
, which are hovering near $100 a barrel, could also sap the economy.
“The biggest dangers to the U.S. economy are external,” said Leslie, pointing to the situations in Greece and Iran.
That’s not to say everyone expects the U.S. economy to roar ahead even if it skirts international potholes. While 243,000 new jobs were created in January, according to preliminary government data, the six-month average is a smaller 167,000. And unemployment remains stubbornly high at 8.3%.
“The labor market is healing but we have a long way to go. You don’t want to put much stock into one month of data,” Sweet said. “We want to see 250,000 jobs a month become the norm before we change our outlook.”
marketwatch.com
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