Advance retail sales came in at a fractionally less-than-anticipated 0.6% in December, following an upwardly revised November reading of 0.2%. Sales are now 4.1% higher than a year ago. Excluding autos, sales were more disappointing, rising by just 0.2%, where an increase of 0.5% was expected and follows a 0.3% increase in November. Sales for this category are now up 3.4% from one year ago. Motor vehicle and parts sales increased by a strong 2.4%, after a decrease of -0.2%; they are now 6.8% 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 increased by 2.0%, following a flat reading in November, and are 6.3% higher than a year ago. The strength in core sales was mainly focused at nonstore retailers (1.3%), furniture and home furnishing stores (0.5%), and building materials and gardening stores (0.5%). Any weakness in the month came from decreases at miscellaneous stores, general merchandise stores, electronics and appliance stores, and foods stores. Excluding gasoline and autos, retail sales were unchanged on the month, following a 0.3% increase in November, and were 3.1% 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.
Today’s report shows a solid, but not spectacular, finish to 2016. Much of the strength this past month came from higher gasoline prices and further strength in auto sales (a good indication of a confident consumer). Outside of these, growth was a little disappointing, with the notable winner still being the nonstore retailers, though housing-related stores (building and gardening equipment and furniture and home furnishings) continue to do well—indicative of a further strengthening in the housing market. Meanwhile, as we discuss in today’s Economics Weekly, while the underlying fundamentals for the U.S. consumer are very solid, there are a few traditional drivers of consumption that are no longer providing the same tailwind they were in the previous years. These include rising inflation, rising energy prices, and rising interest rates when debt levels relative to income are still above 100%. Nevertheless, they should by no means derail the consumer, but simply act as more of a drag against rising incomes and spending than was the case previously. This will do little to change the Fed’s current guidance for 2-3 rate increases this year.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.