Retail sales unexpectedly stalled in December, suggesting consumers provided less firepower for the economy as the year drew to a close.
The disappointing figures indicate the burst of activity at the start of the holiday-shopping season proved to be short-lived. Households remain frustrated over a high cost of living and worried about the job market.
The value of retail purchases, unadjusted for inflation, was little changed after a 0.6% gain in November, Commerce Department data showed Tuesday. Excluding auto dealers and gasoline stations, sales were also flat.
Eight out of 13 retail categories posted decreases, including declines at clothing stores and furniture outlets. Sales at auto dealers also fell. Meantime, outlays rose at building materials stores and sporting goods retailers.
The breadth of consumer spending is also a concern. While stock-market gains may be boosting spending among wealthier households, there are signs discretionary spending is less robust for lower-income Americans relying primarily on more moderate wage growth.
Meanwhile, severe winter weather late last month that restrained activity across much of the U.S. will make it difficult for economists and policymakers to gauge underlying household demand at the start of this year. Industry figures show auto sales sagged in January to the slowest annualized pace in nearly three years, while air travel suffered extensive disruptions.
“The weaker-than-expected retail sales data for December won’t be enough to spoil the fourth quarter,” Thomas Ryan, North America economist at Capital Economics, said in a note. “But, together with the likely weakness of spending in January amid extreme winter weather in most of the country, it leaves consumption growth on track to slow sharply this quarter.”
That said, many economists expect tax refunds to underpin demand early this year.
The December retail sales report showed so-called control-group sales — which feed into the government’s calculation of goods spending for gross domestic product — unexpectedly fell 0.1% after a downwardly revised gain in the prior month. The measure excludes food services, auto dealers, building materials stores and gasoline stations.
Recently, companies have indicated that consumer spending has remained uneven across demographic groups. Levi Strauss & Co. said that despite raising some prices, the company hasn’t seen a pullback in spending. PepsiCo Inc. said budgets remain strained for lower- and middle-income consumers, while Lululemon Athletica Inc. noted that Americans were “trading down.”
Before the latest retail sales data, the Federal Reserve Bank of Atlanta’s GDPNow model suggested household spending would add more than 2 percentage points to fourth-quarter growth, slightly less than the contribution in the previous period.
Since the retail figures aren’t adjusted for inflation, weaker figures could be impacted by steep holiday discounts. The data largely reflect purchases of goods, which comprise roughly a third of overall household spending.
Spending at restaurants and bars, the only service-sector category in the retail report, eased 0.1% after jumping the previous month.
Inflation-adjusted spending data on goods and services for December will be released Feb. 20.
Separate data out on Tuesday showed that growth in labor costs eased in the fourth quarter. The employment cost index, a broad gauge of wages and benefits, increased 0.7% in the three months ended in December, the smallest advance since 2021, according to the Bureau of Labor Statistics.
Fanzeres writes for Bloomberg.
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