Economists say the big drop in retail sales for December makes the comparisons in the first quarter GDP report more difficult. First quarter growth is widely expected to be below 2 percent but the economy is expected to bounce back above 2 percent growth in the second quarter.
“We are already pretty weak [in the first quarter] because of the retail sales number. The arithmetic that goes into adding up GDP, you’re in such a hole to start the quarter because you ended so weak,” said Kevin Cummins, senior economist at NatWest Markets.
Durable goods for January is reported Wednesday, and economists are watching to see what happened to business spending in that report. At the end of the quarter, expenditures slowed down, yet in the fourth quarter GDP report, business spending was surprisingly strong.
CPI on Tuesday is also important. With the Fed now signaling it is pausing in its rate hiking, any surprise pickup in inflation would be significant.
“Inflation data is important from the Fed’s perspective, but I don’t think it’s going to be something that’s going to spook them if we get a stronger report,” said Cummins. “We expect 0.3 on headline, core 0.2 percent. Year-over-year core would stay at 2.2 percent for the third month. It doesn’t seem like something that’s market moving if our forecast is realized.”
The Fed will largely be out of the picture in the coming week, with Fed officials in a quiet period ahead of the next meeting March 19 and 20. But Fed Chairman Jerome Powell was to appear in an interview on “60 Minutes” Sunday.
Stocks were lower in the past week, with the S&P 500, Nasdaq and Dow all heading for their worst week since Dec. 21, right before the Christmas Eve plunge. The market reacted to signs of slowing global growth and concerns the trade talks would not lead to deal.
Keon said the market could be disappointed by a trade deal, unless it is is broad and includes protection for intellectual property and an end of Chinese transfers of U.S. technology. White House top economic advisor Larry Kudlow said Friday that President Donald Trump and Chinese President Xi Jinping could meet later this month but nothing is in “cement.”
Speaking on CNBC, he pointed to overnight economic data from China that showed exports there plunged 20.7 percent last month from a year ago, missing expectations by a wide margin.
“We have hurt them,” Kudlow said on “Squawk on the Street.” Both sides have indicated they hope to reach a deal. “We are still negotiating by phone and teleconference.”
Keon said a sweeping deal, with an end to tariffs and a hardline on technology, would drive the market higher.
“If you get a real deal, you would get a big response. I would not really count on that as a big positive catalyst for stock prices, but it’s possible. If the whole thing falls apart, in that case it would be pretty negative for the market, particularly if we increased tariffs,” said Keon.
Trump has held off another round of tariffs, expected March 1, due to progress in the talks.
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