Retail sales rose by 0.6% month-on-month (m/m) in December, extending November’s 0.3% gain. This was higher than consensus forecast calling for an increase of 0.4%.
Trade in the auto sector was up on the month rising by 1.1% m/m. This reflected an increase in sales at both motor vehicle dealers (up 1.2%) and automotive parts and accessory stores (up 0.7%).
Sales at gasoline stations continued to pull back, falling by -1.3% m/m extending last month’s -3.4% decline. This largely reflected the reduction in gas prices. The building materials and equipment category rose by 0.4% m/m, overcoming the previous month’s -0.1% decline.
Sales in the retail sales “control group”, which excludes the above volatile components (autos, building materials and gas) and is used to estimate personal consumption expenditures (PCE) came in at a sizeable 0.8% m/m. November’s figure was also revised up to 0.5% growth from the previously reported 0.4%.
- Among the control group, the largest contributions came from sales at non-store retailers (1.5% m/m), clothing and accessory stores (1.5% m/m) and department stores (1.3 % m/m).
- The only two categories posting declines were health and personal care stores (-1.4% m/m) and furniture and electronics stores (-0.7% m/m).
Food services & drinking places – the only services category in the retail sales report – was flat on the month after a upwardly revised growth of 1.7% m/m in November.
Key Implications
Once again U.S. consumers showed their resilience, boosting retail spending in December and closing out the year with a bang. Sales for the month rose at a relatively fast pace adding to decent gains in November. This was sufficient to overcome October’s decline, causing retail sales to grow at a 3.9% annualized pace for the fourth quarter. While decent, this was still a step-down from 6.9% q/q annualized growth in Q3. With the holidays in the rear view mirror and consumer headwinds still firmly in play, spending is expected to continue slowing in the New Year.
While moderating, consumer spending is still resilient and remains a challenge to the Fed’s disinflation objective. Given that this spending is largely being supported by a still robust labor market, the central bank will need to see more progress on this front (i.e. a more balanced labor market with reduced wage pressures) before pursuing rate cuts. This is unlikely to happen before summer.
