Restaurant Sales, Holiday Shopping Seem To Indicate A Healthy U.S. Consumer

Americans seem to be enjoying the holiday season so far, eating out more and loading up on their shopping. And many, of course, are also enjoying some additional funds in their portfolios thanks to the strong post-election stock rally.

Entering the final two weeks of the year, the stock market sits near record highs and unemployment is scratching multi-year lows. Along with that, we’ve had a couple of key economic reports indicating consumer optimism, and that’s often good news for stocks. It’s worth monitoring some key additional data in the coming days to see if they keep reinforcing ideas of economic strength.

Black Friday and Cyber Monday came in strong, but the coming week is the last of the holiday shopping season, so it’s important to keep watching for any additional indications of how it might be going. Whether it’s traditional brick and mortar outlets like Macy's Inc M, Kohl's Corporation KSS, and Nordstrom, Inc. JWN; or online companies like Amazon.com, Inc. AMZN and eBay Inc EBAY, this is the final chance to shine before Christmas and Hanukkah hit. There is some concern that the current cold weather could have an impact on shopping, especially at traditional stores, so keep an eye on temperatures.

In another sign of solid consumer health, restaurants had their best month since February, according to last week’s retail sales report from the government. Everybody’s going out to eat, and that’s a very healthy signal. When people spend money on restaurant meals, it often means they feel more comfortable about their economic situation, and that can show up in other areas as well. On the other hand, auto sales had a very rough time in November, the retail sales report said. What does that tell us? Well, auto sales have had a nice run recently, so it’s not a complete surprise to see a challenging month.

The big number to watch this coming week is the government’s durable goods orders report on Thursday morning. If this number goes up, it could provide additional evidence of consumer health and confidence. Durable goods orders rose sharply in October, thanks in part to a spike in transportation orders. It was the fourth-consecutive month of growth after a somewhat disappointing first half of 2016 for the indicator.

Dow 20,000: We’ve seen it ad nauseam recently on all the business news channels. But remember, it’s just a number. It may be nice to look at, but it’s only 30 stocks, so one stock can have an oversized influence. The S&P 500 Index (SPX) is the more interesting one to follow.

Many derivatives firms are likely to take a step back as the holidays approach, so that means volume might be lower the last two weeks of the year. Investors may want to take a careful approach to trading, because sometimes when volume is low it can mean more choppiness in the markets, though the VIX kept floundering Friday. It’s also possible that with the huge run-up in stocks over the last six weeks, some investors might take some money off the table before the end of the year.

Also keep watching those other economic indicators, namely bond yields, gold, oil, and the dollar. Last week’s rate hike and the Fed’s stated plans to raise rates three times next year (see below) hit gold and oil hard last week, but strengthened yields and the dollar to multi-year highs. There were signs Friday of some of these price trends taking a pause, but it’s going to be interesting to see where they go from here.

When’s the Next Hike?

The rate hike last week was really no surprise, considering the futures market had pegged chances at around 99%. So what does the futures market tell us about when the next hike might come? As of Friday, chances for a hike next May stood at around 33%, according to CME futures, with chances for a June rate raise at a much higher level, around 70%. So the lesson seems to be that we don’t have to be too concerned about a hike in the next few months, but a summer increase looks likely. The Fed has indicated it plans three hikes in 2017, but, as we’ve seen, these estimates don’t always turn out as expected.

What’s the Word on Growth?

The government is scheduled to issue its third and final Q3 gross domestic product (GDP) estimate this Thursday morning. Last time out, the estimate was 3.2%, up slightly from the prior one. Before too long, we’ll start seeing official Q4 GDP estimates, and right now, growth this quarter appears slightly slower than in Q3. The Atlanta Fed now pegs Q4 GDP growth at 2.6%. That’s up from the previous 2.4% estimate and reflects anticipated stronger consumer expenditures growth, the Atlanta Fed said.

Housing Starts Disappoint

Amid some of the more positive economic signs, there was a negative reading Friday as November housing starts came in below expectations. The number dropped 18.7 percent to a seasonally adjusted annual rate of 1.09 million units, the Commerce Department said. October's starts were revised up to a 1.34 million-unit rate, the highest since July 2007. Homebuilder confidence remains high, according to a survey last week, but single-family home building fell 4.1% in November. There’s some concern about housing demand as mortgage rates go up, but on the other hand, wages have been rising and the job market looks strong, factors that could play into increased housing demand. Existing home sales data for November are due this Tuesday.