Sifting Through the DataIn the world of macroeconomic indicators, many economists were looking to Thursday's report of December retail sales to clarify the state of the holiday shopping season and, by extension, the health and appetites of the U.S. consumer. They didn't have an easy task.
The headline number looked good, with retail sales overall rising 1.2% from November, the best performance since September. Much of that gain was due to auto sales: Not only were carmakers lavishing incentives on buyers, a huge depreciation tax break for small businesses expired at year-end. Minus autos, sales were up just 0.3%. Weakness appeared in falling month-over-month sales at electronics and clothing stores. Online sales were a bright spot as so-called nonstore retailers saw sales improve by almost 2%.Still, the strength is sales over the course of the year was evident. The 12-month sales total was up 8% from 2003 and 9% excluding cars. The slightly weaker-than-expected sales figure excluding autos was among several factors helping bonds rally. Weekly claims for unemployment insurance spiked up to 367,000 instead of declining as forecast. And import prices fell 1.3% in November. The data points suggested that the economy was not so hot and inflation was in check despite the declining dollar. The price of the benchmark 10-year Treasury note rose 17/32, its yield falling to 4.20%. The import price report didn't look so hot for bonds below the surface, though. Excluding oil, prices rose 0.5% and the trailing 12-month gain was almost 4% excluding oil or 7% with crude in the mix. The Treasury's auction of 10-year Treasury inflation protected securities also helped, showing that inflation expectations were falling. TIPS pay a fixed rate plus the return of the consumer price index. Thursday's issue was priced so that inflation would have to run at about 2.5% through 2015 to provide the same return as on a fixed-rate, ordinary 10-year note. The so-called break-even rate was down from 2.7% last month.