Advance retail sales matched expectations with regard to the headline rate in December, falling by 0.1% following an upwardly revised 0.4% increase in November. Sales are now 2.4% higher than a year ago. Excluding autos, however, sales were a little worse than expected, falling by 0.1% after a 0.3% rise in November. They had been expected to rise by 0.2%. Sales for this category are now up 1.4% from one year ago. Motor vehicle and parts sales were unchanged, following a 0.5% rise in November; they are now 6.4% higher than a year ago.
The most meaningful measure of retail sales activity excludes gasoline and auto sales (to negate the volatile influences of gasoline prices and auto financing incentives). Sales at gasoline stations decreased by 1.1%, following a 1.3% fall in November, and are 14.6% lower than a year ago. Strength in core sales was somewhat mixed, with increases at stores for furniture and home furnishings (0.9%), food and beverages (0.8%), and building and gardening equipment (0.7%). Any weakness in the month came from declines at miscellaneous stores (-2.0%), general merchandise stores (-1.0%), and clothing and clothing accessories stores (-0.9%). Excluding gasoline and autos, retail sales were unchanged on the month, following a 0.5% rise in November, and were 3.3% higher than a year ago. Lastly, non-auto, non-gasoline station sales, less building and gardening equipment, were 0.1% lower in the month and 3.2% higher annually.
December's increase in consumer spending was a little softer than hoped, with the lower headline rate driven by more than just a sharp decline in auto sales in the month. Excluding autos and gas stations, sales were still just flat in the month. The fall in energy prices continues to drag down total sales. As a reminder, this is a nominal series and lower inflation will depress aggregate spending. On the flip side, this fall in the price of energy continues to be the major driver behind the strength so far witnessed in auto sales (total autos sales are just off their 10-year high). Consumers as a whole should be increasing their spending on the back of the large savings they will have generated from the fall in energy prices (particularly in the housing-related areas as this market continues to improve), yet this expected pick-up in spending has been little less than hoped for. Rather, outside of the autos, consumers still seem to be increasing their savings and repairing their balance sheets. What we have had over the last year, however, seems to have been more of a stop-and-go type of spending pattern, with consumers still very tentative about spending and really waiting to take advantage of the heavier discounting, which, following years of the same pattern, they have come to anticipate and rely on. Looking toward 2016, continued labour market strength and any further modest increases in wages should act as a strong support for consumer expenditure. The main risk to this is the possibility that greater-than-expected pressure on profit margins causes companies to start to shed workers to protect those margins.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.