Off to the races

The big economic print of the week came in the form of the January retail sales report. Retail sales increased 5.3% for the month, which was 1.2% ahead of expectations. The rise in retail sales following the stimulus package’s $600 checks was quite broad-based across all categories – electronics and applications (+14.7%), furniture and home improvement (+12%), online spending (+11%), and even food and drinks (+6.9%). Despite these monthly gains, spending is still well below pre-COVID levels. 

Moral of the story: This was a much stronger start to consumer spending than we had expected. At the same time, new jobless claims for last week came in at 861k, which is the highest we’ve seen in a month. Plus, we have higher than expected tax bills/lower than expected tax returns likely coming up. We definitely aren’t out of the woods yet and many factors are likely to continue weighing on consumer spending, but the retail sales number is a nice positive surprise.   

Yell-en’ about more stimulus 

Treasury Secretary Janet Yellen is backing the need for a large stimulus package to get the economy back on its feet and address continuing issues like back rent owed by 15m people and struggling small businesses. Despite the potentially looming inflation, Yellen believes “the price of doing too little is much higher than the price of doing something big” and the Fed has tools in its arsenal if inflation starts becoming an issue.

Moral of the story: The hope for the Biden administration’s $1.9 trillion stimulus plan, which includes $1.4k stimulus checks, is driving market optimism. Hopefully we see something concrete come out of Washington in the near future. 

It’s starting to happen

Industrial production increased 0.9% in January, versus the 0.5% increase expected by economists. The rate of growth in industrial production has been deteriorating since the beginning of the recovery last summer but slowly approaching pre-COVID levels. Production is down only about 1.8% compared to January 2020. 

Moral of the story: As industrial production is returning, so are its costs. The producer price index, which measures prices that producers receive for their goods, increased 1.3%. This is the largest monthly gain since the index began in 2009. Remember how we’ve been worried about inflation starting to creep into the economy? These are the first signs. 

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