Stocks Higher, But Dollar Indecisive After Retail Sales Release

The U.S. dollar was pressured lower on Friday, after U.S. Bureau of Labor Statistics reported a gain of 74,000 nonfarm jobs, the smallest increase in three years. Analysts had expected an incease of 196,000.

A decline in labor force participation cast a shadow on news that the December U.S. unemployment rate fell to 6.7 percent from 7.0 percent in the prior month. The civilian labor force participation rate declined by 0.2 percent to 62.8 percent in December -- equaling November's figure, which was the lowest since 1978.

However, Tuesday's retail sales report showed a more upbeat picture of the U.S. economy, as consumer spending rose more than expected in December. Both stock index futures and the dollar index traded higher in the initial market reaction to the report.

Retail sales tracks the change in the total value of inflation-adjusted sales within the retail sector, using a sampling of both large and small companies. The data from the report is very fresh, being released only about two weeks after the month it covers.

Due to the data being reported so quickly, it is considered a 'coincident indicator,' one that reflects the current state of the economy. Retail sales is among the most important economic releases, being the primary indicator of consumer spending, which makes up about two-thirds of total gross domestic product (GDP).

The report contains two parts, a total retail sales figure and a core retail sales figure which excludes automobiles.

The U.S. Commerce Department reported on Tuesday that total retail sales rose by 0.2 percent in December, beating analyst expectations of 0.1 percent by a small margin. The figure for November was revised lower to 0.4 percent.

Core retail sales, excluding automobiles, gasoline, building materials and food services, increased 0.7 percent last month, beating analyst expectations of 0.4 percent. The figure for November was revised lower to 0.1 percent.

After an initial spike higher the dollar index drifted lower again in Tuesday morning trading.

Dollar Index Daily Chart

Looking at the dollar index daily chart we can see that it has been in a fairly sideways range since November; trading between 79.68 and 81.48. Despite the news of the taper in December, price is still well below the highs made in November.