- Retail sales rose by 0.3% in December, bang on market expectations. At the same time, November sales were revised up to 0.3%, from 0.2% in the advance estimate.
- The improvement was broad-based, with sales in all but one category – the volatile autos and parts dealers (-1.3%) – rising on the month. Among the remaining volatile groups, sales rose 2.8% at gasoline stations, 1.4% at building material & garden equipment stores and 0.2% at food services & drinking places.
- Sales in the retail sales “control group,” which excludes volatile components (gas, autos, building materials and food services) rose an even better 0.5%, slightly ahead of the median forecast for a 0.4% gain. Control group sales in the month prior, however, were revised down to -0.1% from +0.1% in the advance estimate. In light of a softer performance at the start of the quarter (flat print in October and a downwardly-revised -0.1% in November), control group sales fell 0.3% annualized in the fourth quarter, a notable deceleration from 7.9% and 6.0% pace in the second and third quarter respectively.
- Within the control group, monthly gains ranged from the low of 0.1% in miscellaneous and furniture & home furnishing stores to 1.6% in clothing & accessory stores. Sales at non-store retailers, a typically fast-growing category, grew only 0.2% on the month.
Key Implications
- After a lackluster performance in November, American consumers loosened the purse strings in December. Despite the year-end boost, ‘control group’ sales in the fourth quarter failed to keep up with their speedier pace in the prior two quarters. As a result, spending on ‘goods’ is expected to have provided less of a lift to overall consumption than it has recently. Still, with services spending buoyant, we estimate real consumption growth in the fourth quarter to have remained in a healthy range between 2.0% and 2.5%.
- The December gain provides a solid handoff to retail sales at the start of 2020. Meanwhile, strong consumer fundamentals, including still-sturdy job and income growth, should help carry the healthy consumption trend forward.
- The recent signing of the ‘phase one’ trade deal with China is expected to lend additional support, at least in the near term. The deal, which lowers tariffs on some goods and hits the pause button on additional tariffs, should provide added peace of mind for the American consumer for the time being. But, with several outstanding thorny issues to be tackled in a second phase, trade negotiations could prove a wildcard further out.
