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Economists chop growth outlook after consumers shop less than expected

People walk along the sidewalk in the rain in New York.
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People walk along the sidewalk in the rain in New York.

Economists shaved their growth forecasts for the fourth quarter after November's softer retail sales report, but that doesn't mean the economy is slowing meaningfully or the consumer is stressed.

Between the miss in retail sales and softer industrial production, JPMorgan chopped its forecast to 1.5 percent GDP growth from 2 percent for the fourth quarter, a disappointment after the third quarter's 3.2 percent pace.

Goldman Sachs Chief Economist Jan Hatzius said he lowered tracking fourth-quarter GDP to 2 percent from 2.1 percent, and Barclays lowered the tracking pace to 1.8 percent after weaker retail sales and industrial production.

Retail sales, an important measure of the consumer economy, grew by just 0.1 percent in November, compared with forecasts for 0.3 percent. The period included a week of uncertainty ahead of the Nov. 8 election, as well as the Thanksgiving holiday which is considered the start of the holiday shopping season.

"It's the usual noise. I think a lot of other indicators are looking better this quarter," said Hatzius, pointing to business surveys.

October's retail sales, originally reported at 0.8 percent, were cut to 0.6 percent. September grew at 1 percent.

Total November retail sales of $465.5 billion were up 3.8 percent from a year ago. When automobiles, gasoline, building materials and food services were excluded, core retail sales were also up 0.1 percent last month.

Diane Swonk, CEO of DS Economics, said she was leaving her fourth-quarter growth forecast at 1.9 percent, but she also said the retail number is missing a lot of spending that is going on, including airline tickets and hotel stays.

"The retail sales number is not really capturing the move to online. Where you do see strength is food and restaurants surged," said Swonk.

Sales at nonstore retailers, which would include online, rose only 0.1 percent from October, but were up 11.9 percent from last November.


"When the economy is running at 2 percent-ish ... portions of the economy are kind of in recession at any point in time. There are cracks. We had some concerns about the strength of imports. Imports of consumer and capital goods are soft. The business spending side still seems quite soft to us." -Michael Gapen, Chief US economist, Barclays

Spending at restaurants increased by 4.9 percent over a year ago. Car and truck sales fell by a half percent last month from October, but were 3.3 percent higher than last year.

Gas station sales rose 4 percent from a year ago levels. Swonk said that also fits with the fact that consumers are traveling more and spending more money on that part of the economy.

"We know that driving miles are up," said Swonk. "Prices at the pump went down, but gasoline sales went up."

Barclays Chief U.S. Economist Michael Gapen said he did not change his 2.5 percent growth forecast for the fourth quarter, despite the dip in the tracking estimate, which is based on economic data that has been reported.

"When the economy is running at 2 percent-ish ... portions of the economy are kind of in recession at any point in time. There are cracks. We had some concerns about the strength of imports. Imports of consumer and capital goods are soft. The business spending side still seems quite soft to us. We have concerns auto sales will come down just because the pace is unsustainable," said Gapen.

"We're not looking for things to roll over and be a problem. But we don't think the economy is fundamentally different than what we had, and that's 2 percent or a bit better," he said.

Economists say the retail sales number is volatile, but consumption had run at a strong pace in the second quarter and a bit slower but still strong rate in the third quarter.