Bond prices rallied and stock prices fell on renewed worries about a consumer-led recession following the release this morning of December's retail sales and industrial production. Both declined last month. Yesterday, the NY Fed's regional business survey for January was also very weak. (We will review it tomorrow along with the Philly Fed's latest regional business survey.)
Let's have a closer look at the data:
(1) Retail sales. Inflation-adjusted retail sales edged down during most of last year (chart). We know that consumers retrenched spending on goods following their buying binge during 2020 and 2021. Instead, they've been spending more on services. Furthermore, retailers have been forced to discount merchandise to clear bloated inventories. So some of the weakness in retail sales reflects price cuts, which are helping to moderate inflation as we saw in this morning's PPI.
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