Retail sales fell by 1.1% in December from a downwardly revised decline of 1.0% in November – below the consensus forecast for a -0.9% pullback.
Motor vehicle & parts dealers reported a 1.2% m/m decline in December. Gasoline station receipts were also down 4.6%, though this was largely attributed to lower gas prices. We might see a reversal of this in January as gas prices have turned higher this month.
Excluding autos and gas, sales were down 0.7% m/m – below consensus expectations for a loss of 0.5% m/m.
Sales at building materials and garden equipment stores – another volatile category – were up 0.3% m/m.
Excluding volatile categories, retail sales in the “control group,” used in estimating personal consumption expenditures (PCE), declined by 0.3% m/m from a downwardly revised 0.5% m/m increase in November. This was below the consensus forecast for a 0.3% decline.
The biggest drag came from sales at furniture stores (-2.5% m/m), as well as electronics & appliance stores, non-store retailers, and miscellaneous stores retailers – all three of which declined by 1.1% on the month.
Sales at food services & drinking places – the only gauge for the services sector in today’s reading – was down 0.9% m/m, following four months of gains.
The only category with positive growth was sales at sporting goods & music stores, which gained a 0.1% m/m in December, while sales at food & beverage stores were flat.
Key Implications
This morning’s spending figures show that 2022 ended on a softer note. Consumers are becoming increasingly more cautious in allocating their income and pandemic savings. Excluding volatile items such as auto, gas and food, growth in real core retail sales has been slowing since May and was 5.2% lower in December. Looking at the year ahead, we could expect a further deceleration in spending on material things, with consumption of goods expected to decline 0.4% (annualized) in Q1 2023.
Next on the agenda is the question of how much demand for services holds up. The sudden dive of the ISM services survey into the contractionary territory may be indicative of an inflection point. While soft and hard data often diverge, today’s report also points to weaker services consumption as restaurant sales decline. If confirmed, real consumer spending will come in a bit weaker than previously expected at 2.7% (annualized) in Q4, building a stronger case for the Fed not to go beyond a 25-basis point hike in February.
