Retail Sales Signal "Further Deterioration in Consumer Spending"

Noah Yosif

NAFCU issued the following analysis and statement on today's retail sales data:

A few key points:

• Total retail sales declined 1.8% in December, following a 0.6% contraction in November;
• Year-over-year sales were up 6.7% in December while control group sales (excludes auto, gas, and building material categories) were up 8.3% from a year ago; and
• Retail sales in the following sectors saw a widespread decline - gas stations (-4.6%), furnishing stores (-2.5%), and motor vehicle and parts dealers (-1.2%.)

"Retail sales decreased for the second consecutive month, signaling further deterioration in consumer spending following months of persistent inflation in conjunction with an aggressive tightening cycle. November declines were driven by elevated financing costs afflicting credit-intensive industries such as Furniture and Autos, but December declines were broad-based across most industries, indicative of increased fatigue among consumers in tolerating higher prices, despite having cooled in recent months. While an unusually weak retail print indicates accelerating headwinds facing consumption, its contributions as evidence of an impending economic slowdown remain questionable. Retail trade only includes spending on goods, measured in nominal terms. As coronavirus fears have subsided, consumer preferences have shifted toward services, which are not counted in these numbers, while overall savings as well as household wealth remain at record highs to support continued spending into 2023. Furthermore, inflation has rapidly retreated owing to lower energy prices as well as improving supply chains, complemented by a robust labor market including steady job creation, wage growth, and unemployment, all of which increase the potential for a soft landing. While consumers have become more cautious given increased economic uncertainty and higher borrowing costs, they remain capable of weathering these headwinds in the long-term." 

- NAFCU Economist Noah Yosif

---