Fed will move more slowly than normal in 2016

Markets are expecting a 'strong' retail sales report on Friday but after three months of zero growth one isn't quite sure if that's really strong or not. Even were the 0.3% (MoM, sa) rise in headline sales that markets expect to materialize, on-year growth would drop another tick to 1.6% YoY. And it won't be an easy jump. Vehicle sales fell by 0.4% in November and Black Friday sales were, by most accounts, more greyish in hue. Look for a two-tick rise instead and be happy if it comes. 

Control group sales - which exclude gas, autos, food and home repair items - are expected to advance by 0.4%. Once again though, it's a payback outcome that wouldn't prevent on-year growth from falling to 2.6% YoY from 2.9% in October, putting this measure of growth at post-crisis lows, save for January-2014 when bitter cold weather brought a temporary halt to activity. November was fine this year, weather-wise, which means weak sales are just plain weak sales. 

The Fed is getting ready to raise interest rates next week. Will higher rates push sales growth lower still? Probably not by much, at least for the control group components (which feed into the consumption series in the GDP accounts). The three most interest rate-sensitive sectors of the economy are housing, business investment and automobile sales. Housing doesn't feed directly into the series, autos are excluded outright and business investment isn't even up for discussion. Thus, most control group retail sales should survive rate hikes pretty well. How housing, autos and business investment respond remains a very open question. Which is why the Fed will move more slowly than normal in 2016.