December retail results topped forecasts
Retailers had reason to celebrate as the holiday shopping season wound down and the calendar turned to 2024, although festivities were likely a bit more restrained than in 2022. Sales growth modestly topped expectations for December, rising by 0.6% compared with forecasts for a gain of 0.4%. Sales growth was reasonably widespread, with most retail sectors posting gains for the month.
The report capped off a good, but not great, retail season in which sales increased by about 3% — less than half the surge retailers experienced in 2022. That’s reflective of the broader slowdown in the U.S. economy and the hangover effects of the goods-focused spending binge that supported the economy’s initial post-recession rebound.
On a brighter note, the retail sales control group increased at a brisk 0.8% pace, well ahead of expectations for a modest 0.2% gain. That unexpectedly robust increase will flow directly into the consumption component of Q4 GDP and is likely to nudge forecasts modestly higher as economists wait for the first estimate to be released next week.
Among those establishments that didn’t benefit, a 1.3% fall in gas station sales reflected lower fuel prices, capping a year in which subsector sales dipped by 6.6%. Lower prices at the pump likely provided a modest boost to consumption on other goods and services.
An array of data on the retail sector released in the past month suggests that traditional brick-and-mortar stores posted sales gains, although online retailers continue to attract a greater portion of the growth in household spending. Nonstore retail, which is dominated by the e-commerce channel, saw a solid 1.5% sales gain for the month and 9.7% for the year.
Whether its price, convenience, speed, or simply avoiding inclement weather, Americans continue to embrace online shopping when practical — a trend that appears unlikely to change.
The slowdown in consumption reflects the broader reality for the U.S. economy and consumers. Households and businesses alike are feeling the impact of inflated prices and higher interest rates. Spending growth is still benefiting from the tailwinds of excess cash that piled up in recent years and solid wage growth. How long that can continue remains to be seen. At the same time that interest rates have risen, lending standards have tightened — a reality that will create a growing challenge for consumers that need to tap credit to fuel spending. Labor conditions are easing, suggesting that wage growth is likely to cool as well. And while there are indications that the average household is sitting on more cash today than before the pandemic, that stockpile has been reduced over time.
At the same time, inflation is falling and is expected to continue to normalize in the coming year. That’s not lost on consumers, who have recently turned a bit more upbeat in their assessment of the economy and the potential for a soft landing.
The bottom line? Consumers are feeling the effects of higher interest rates and a slowing economy, a reality that’s apparent in slower sales growth for the retail sector. Whether or not the economy can decelerate without stalling remains to be seen, but for now at least, consumers remain both willing and able to do their part to keep the economy on a growth trajectory.
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