INDICATOR: November Retail Sales and Import and Export Prices

KEY DATA: Sales: +0.2%; Ex-Vehicles and Gasoline: 0%/ Import Prices: +0.2%; Nonfuel: -0.1%; Exports: +0.2%; Farm: +2.2%

IN A NUTSHELL: “We may finally be seeing the impact of the slowdown in income growth on consumer spending.”

WHAT IT MEANS: Atlas may be shrugging – or at least struggling. The consumer has been the broad shoulders of the economy but income gains have, surprisingly, been decelerating. That has been the case even as job growth remains solid. Well, labor cost controls may be starting to catch up with the economy. Retail sales were disappointing in November. Yes, vehicle demand, sales of electronics and online purchases were solid, but the remainder of retail sales were soft or even negative. The closest measure to consumption in the GDP report, the so-called core retail sales, which excludes vehicles, gasoline, food services and building materials, was up modestly. Unless there is a surge in December, it doesn’t look as if fourth quarter consumer spending will grow anywhere near the 2.9% posted in the third quarter. That would mean it could be difficult matching the 2.1% overall growth pace.

As for inflation, it is really not much of an issue. Import prices rose in November but the largest gain came from energy. Excluding fuel, prices were down. On the consumer side, vehicle import costs were up minimally while consumer goods prices were flat, so don’t look for any surge in the consumer price measures. There was some good news in the report for farmers. For the second consecutive month, agricultural export prices surged and over the year, they are up a solid 2.5%.

MARKETS AND FED POLICY IMPLICATIONS: The economy continues to expand but the pace may have moderated further in the last quarter of this year. The days of 3% growth are far behind us and it is unlikely that the so-called phase one agreement with China will change things significantly in the short run. There may be some additional farm purchases, but much of that may be due to the swine flu epidemic in China. Once that problem is resolved, it is not clear if the farm sales will hold up, regardless of what the trade agreement says. I suspect it will be billed as the greatest deal in the history of the solar system, but any impact on manufacturing could take years to see. As for the farm sector, the tale will be told in a year or two from now. Will purchases be back to where they were before the trade war began in March 2018 and will they stay there? That is hardly clear. Remember, this is “phase one.” There is little expectation that the next phase, where the real deals are supposed to be made, will happen and if they do, when that would be the case. But that will not stop investors from celebrating - and so they should, at least a little. There is not likely to be a full-fledged trade war in 2020, which would have driven the economy into recession. But there is also little reason to think the economy will reaccelerate. As I keep saying, if you like growth in the 2% range, you will be happy. But if you were hoping for 3% growth, well that present is not likely to be under your tree this year.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.