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Economic Forecasts

Consumers Still Going Strong

Kiplinger's latest forecast on retail sales and consumer spending

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GDP 2.1% growth in ’17, following 1.6% in ’16 More »
Jobs Hiring pace should slow to 160K/month in '17 More »
Interest rates 10-year T-notes at 3% by end '17 More »
Inflation 2.4% in '17, up from 2.1% in '16 More »
Business spending Rising 3%-4% in ’17, after flat ’16 More »
Energy Crude oil trading from $55 to $60 per barrel in May More »
Housing Single-family starts up 9% in '16, 11% in '17 More »
Retail sales Growing 3.9% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, after nearly flat '16 More »

Strong retail sales growth in January indicates that consumers are still bullish on the economy. Holiday sales had been decent but unremarkable, except for online purchases and vehicle sales, which had led to questions about consumers’ staying power. Those questions have been answered for the moment by January’s 0.7% monthly jump in core retail sales (which exclude autos and gasoline, two notoriously volatile categories). Another positive: While spending on motor vehicles dropped in January, its December surge was so strong that even a lower January level still looks quite good.

The report is likely to reassure the Federal Reserve that the U.S. economy can withstand a couple of interest rate hikes this year.

In-store spending revived in January. While vehicles and online purchases drove growth in consumer spending in November and December, previously flat spending in stores and restaurants saw a good bounce in January, showing that these sectors aren’t being left behind. Spending at sporting goods, electronics and department stores all rebounded in January, after dropping in December.

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Excluding gasoline, retail sales in 2017 are expected to rise 3.9%, slightly above the growth rate in 2016. A pickup in merchandise sales will more than balance out an expected slowing in the growth of restaurant sales.

Higher gasoline prices will make it appear that total sales are surging at a 4.6% rate this year. But this will be deceptive, because while gas prices are likely to rise, the volume of gas sold will be little changed.

The timing of any tax cuts is a wild card for retail sales. If Congress passes tax cuts early enough in the year, there could be a positive impact on spending in 2017. But that’s not likely.

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Source: Department of Energy, Price Statistics