Two favorable economic reports were issued earlier this morning. In one such release, the Labor Department again reported that producer, or wholesale, inflation was totally absent, with such prices dipping by 0.2% last month, following a sharper drop of 0.8% in November. In addition, the Commerce Department issued a report showing that retail spending was somewhat stronger last month than had been forecast.

Specifically, the government intoned that retail sales were up by 0.5% in December from the previous month. Expectations had been for a notably more modest gain of just 0.2%. Moreover, figures for November were revised higher. Initially, that month had seen a gain of 0.3%; that estimate was revised to show an increase of 0.4%.

Meanwhile, according to pundits, the December consumer data showed a willingness to spend by the public, notwithstanding the political bickering going on in the Capitol over tax and spending policies toward yearend. The willingness of consumers to spend in that contentious environment will be tested again in both the current month and in February. That's because of the looming deadlines now in place for both the spending reductions mandated in the budget and the need to raise the debt ceiling. Those negotiations figure to be even more contentious than the recent efforts to hammer out a tax accord had been.

Overall, consumers spent more heavily last month on autos, furniture, personal care, and dining out. This is a critical report, as retail spending accounts for some two-thirds of the aggregate gross domestic product. This better report and the slight upward shift for November suggest that the fourth-quarter rate of economic growth may well have been in the range of 1.5%. Previously, we had surmised that the recent increase in GDP would have been closer to 1%, or slightly better.

In all, this report was clearly uplifting, most notably as a report on consumer confidence, issued during the final days of December, had shown a marked falloff in such sentiment, which many had ascribed to the fractious debate then going on in Congress over tax policies.

Finally, this was a confidence-building issuance, and one that gives those now questioning the staying power of the current modest business expansion some food for thought going forward. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.