US Dollar Index Rebounds from 2-Month Lows Despite Weak Retail Sales Data

After a series of significant declines in recent trading sessions, the US dollar recovered little ground in Friday’s trade. The US dollar index rose 0.39 points (or 0.4%), to 95.18, a rebound from two-month lows. The dollar ended Friday’s trading at 114.21 yen, almost flat from 114.20 yen at the conclusion of New York trade on Thursday.

The dollar has recovered after the publication of a flurry of US economic data, which included a surprise Commerce Department report indicating a significant decline in US retail sales in holiday season. Retail sales fell by 1.9% in December, after increasing by an amended 0.2% in November, according to the Commerce Department.

The abrupt decline stunned experts, who were expecting retail sales to remain unaltered from the 0.3% gain recorded in the prior month. Fears about inflation also led to a larger-than-expected decline in consumer mood in the United States in the first month of 2022, as per preliminary data published Friday by the University of Michigan. Consumer confidence dipped to 68.8 in January, from 70.6 in December, according to the study. The index was projected to fall to 70.0 by economists.

“Although the Delta and Omicron variations had a role in this decreasing trend, the drop was partly a result of a growing inflationary pressure,” stated Richard Curtin, head economist at Surveys of Consumers. “Almost 75% of consumers at the start of January rated inflation higher than unemployment as the nation’s most significant concern.”

Mentioning inflation’s negative effect, Curtin noted that consumer confidence fell 9.4% at the start of January among families with aggregate earnings less than $100,000, while it climbed by 5.7% among those with total incomes more than that threshold.Furthermore, in January, one-year inflation rate forecasts increased to 4.9%, from 4.8% in December. Likewise, five-year inflationary projections increased to 3.1% from 2.9%.

The headline index fell more than predicted in January, while the indicator of consumer expectations fell to 65.9 from 68.3 in December. Curtin noticed that lower-income families were more pessimistic about the national economy’s outlook, while higher-income families were more optimistic.

The data indicated a milder decline in the present economic circumstances index in January, which fell to 73.2 from 74.2 in the earlier month. Owing in part to a steep decline in utility output, the Federal Reserve surprisingly issued a report Friday indicating a small decline in December industrial production output in the United States.

The Federal Reserve said that industrial output fell by 0.1% in December, after an upwardly amended 0.70% increase in the prior month. Economists had anticipated a 0.40% growth in industrial output, down from the 0.50% growth first recorded for the earlier month.

The unanticipated decline in output occurred when utilities output fell 1.50% in December, after an amended 1.90% increase in November. Manufacturing production also decreased by 0.30% in December, after a 0.60% gain in November.

Nevertheless, the Fed stated that mining production increased by 2% in December, following a 0.50% increase in November. “Robust demand will ensure that industrial output continues to increase substantially this year,” opined Oren Klachkin, chief US economist at Oxford Economics.

“Factories still have enough of orders to satisfy, and the latest surge in Covid infections may keep products demand up for an extended period. For now, industrial logistics companies will keep working in a challenging climate in 2022; the recent rise in instances seems to be compounding labor issues,” he said.

“While we anticipate constraints to ultimately ease, it is better not to rule out the possibility that logistics constraints will deteriorate further before improving.”

According to the study, industrial capacity utilization fell to 76.50% in December from a downwardly amended 76.60% in November. Economists predicted capacity utilization to increase slightly to 77% in December, from 76.8% in the earlier month.

Manufacturing and utilities’ capacity utilization fell to 77% and 71%, respectively, while mining capacity utilization increased to 79.10%. The Commerce Department reported Friday that corporate inventories in the United States increased higher than anticipated in November.

According to the Commerce Department, company inventories increased by 1.30% in November, equaling October’s upwardly amended increase. The market had anticipated a 1% rise in inventories, down from the 1.20% gain first recorded for the preceding month.

Retail stockpiles climbed 2% in November, while wholesale inventories rose by 1.40% in the same period. Also manufacturing inventories grew by 0.70%, according to the study. Nevertheless, the Commerce Department stated that company sales increased by 0.7% in November, following a 2.20% increase in October. Retail sales grew by 0.10%, while wholesale sales climbed by 1.30%. Manufacturing sales are up 0.70%, while retail sales increased by 0.10%.

Due to inventory growth exceeding sales growth, the total company inventories/sales ratio increased to 1.25 in November, from 1.24 in the earlier month. Import prices in the United States surprisingly decreased in December, as per a Labor Department data issued Friday. The institution stated that import prices fell by 0.20% in December, following a 0.70% increase in the prior month.

The decline stunned experts, who had anticipated a 0.30% increase in import costs. The surprising decline in import costs followed a substantial decline in gasoline import prices, which fell by 6.50% in December after rising by 2.30% in November.

Devoid of gasoline, import prices grew 0.50% in December for the third month in a row, owing to higher costs for non-fuel industrial materials and resources, consumer products, meals, fodder, and drinks, automobiles, and capital equipment.

With import prices prices down for the initial time since August, the yearly pace of rise in import prices decreased to 10.40% in December, from a decade high of 11.70% in prior month.
“We anticipate increased energy costs to support sustained and persistent inflationary pressure in Q1, while additional supply interruptions from the Omicron strain threaten exacerbating import cost pressures,” remarked Mahir Rasheed, US economist at Oxford Economics.

“Still, import prices are expected to decline in Q2 as energy costs moderate and domestic consumption cools with the Fed shifting its emphasis to raising interest rates,” he said.

Additionally, the study revealed an unusually strong decline in export prices, which fell by 1.80% last month following a downwardly amended 0.8% increase in November. The consensus estimate called for a 1.10% increase in export prices, up from the 1% increase first recorded for the earlier month.

The surprise drop in export prices occurred when prices for exports of non-agricultural goods fell by 2.10% in December, following a 0.60% increase in November.

Non-agricultural export prices fell by the most since April 2020, as reduced prices for industrial materials and resources and non-agricultural foodstuff more than countered increased prices for capital goods and also consumer products. Nevertheless, the study said that agricultural export prices gained 0.80% in December, following a 1.10% rise in November.

According to the Labor Department, rising soybean, cotton, fruit, dairy, and maize prices more than negated reduced prices for meat and nuts. Export prices increased by 14.70% in December compared with the year-ago similar period, mirroring a drop from the 18.20% increase in November.