The optimism surrounding the outlook for U.S. consumers was taken down a notch as retail sales slumped in December by the most in almost a year, prompting some economists to lower spending and growth forecasts.
The 0.9 percent decline in purchases followed a 0.4 percent advance in November that was smaller than previously estimated, Commerce Department figures showed today in Washington. Last month’s decrease extended beyond any single group as receipts fell in nine of 13 major retail categories.
While disappointing, the drop followed large-enough gains at the start of the quarter that signaled consumer spending accelerated from the previous three months as the job market strengthened and gasoline prices plunged. Continued improvement in hiring that sparks more wage growth will be needed to ensure customers at retailers such as Family Dollar Stores Inc. also thrive.
“Maybe the optimism a month ago got a little too heated,” said Guy Berger, U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who is among the best forecasters of retail sales over the past two years, according to data compiled by Bloomberg. “It’s a weak number but it follows some really strong ones and I don’t think it changes my general feeling on how the economy and consumers are doing.”
Treasury yields and stocks fell as a deepening commodities rout and the drop in sales spurred concern global growth is slowing. The Standard & Poor’s 500 Index retreated 0.6 percent to 2,011.27 at the close in New York. The 30-year Treasury bond yielded 2.47 percent after declining earlier to a record-low 2.39 percent.
Electronics, Clothing
Electronics merchants, clothing outlets, department stores and auto dealers were among those posting sales declines in December, today’s report showed. Cheaper fuel helped push receipts at gasoline stations down by the most in six years. The Commerce Department’s figures aren’t adjusted for changes in prices.
Morgan Stanley and JPMorgan Chase & Co. were among firms reducing tracking estimates for fourth-quarter consumer spending after the retail figures. Economists at Morgan Stanley trimmed their forecast for purchases to 4.1 percent from 4.4 percent, while JPMorgan took its projection to 4.3 percent from 4.7 percent. In the third quarter, personal consumption increased at a 3.2 percent annualized rate.
The December sales decline “came after two pretty strong numbers,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, whose forecast for a 0.5 percent drop in sales was among the lowest in a Bloomberg survey. “When you lump them all together, it looks like the fourth quarter as a whole was still pretty strong.”
Beige Book
A Federal Reserve survey released today showed most regions registered “modest” of “moderate” economic growth, driven by gains in household purchases.
“Consumer spending increased in most districts, with generally modest year-over-year gains in retail sales,” the Fed said in its Beige Book, based on reports from its 12 regions gathered on or before Jan. 5. Several districts “expect somewhat faster growth over the coming months.”
The median forecast of 87 economists surveyed by Bloomberg called for a 0.1 percent decline in December retail sales, with estimates ranging from a 0.5 percent drop to a 0.7 percent increase.
U.S. GDP
The figures used to calculate gross domestic product, which exclude categories such as food services, auto dealers, home-improvement stores and service stations, decreased 0.4 percent, the worst performance since snow covered much of the country in January 2014, after rising 0.6 percent in November.
Sales of electronics declined 1.6 percent last month, while purchases of apparel decreased 0.3 percent, today’s report showed. Receipts fell 0.9 percent at general merchandise stores and 1.9 percent at building materials outlets.
Purchases at service stations, which have declined seven straight months, plunged 6.5 percent in December. Gas station receipts accounted for about 10 percent of total retail sales last year. The price of a gallon of regular gasoline fell to $2.10 yesterday, the cheapest since May 2009, according to U.S. motoring group AAA. In the month of December, it fell 19 percent.
The biggest drop in fuel costs in six years pushed prices of imported goods down 2.5 percent in December, a report from the Labor Department showed today. The cost of non-fuel goods bought overseas declined 0.1 percent last month.
Auto Sales
Lower fuel prices have emboldened consumers to purchase new vehicles, to the benefit of automakers such as Ford Motor Co. and General Motors Co. (GM) Light vehicles sold at a 16.7 million annualized pace a month on average last quarter, capping the industry’s best year since 2006, according to Ward’s Automotive Group.
Today’s report showed car dealers’ sales declined 0.7 percent in December after a 1.6 percent advance the prior month.
Continued job growth and higher paychecks will be needed for households to ramp up spending in a way that would sustain recent economic momentum.
Labor Department data last week showed payrolls climbed by 252,000 in December after a 353,000 gain the prior month that was higher than previously reported. The unemployment rate fell 0.2 percentage point to 5.6 percent, the lowest level since June 2008.
Wage Growth
Wages have been slow to strengthen, with average hourly earnings falling 0.2 percent in December from the month before in the first drop since late 2012. That limits the amount of spending consumers can undertake without dipping into savings or racking up debt.
“Macro challenges including lack of wage growth, persistent low labor force participation and rising housing and health insurance costs may continue to adversely impact low- and middle-income customers,” Family Dollar Stores Chief Executive Officer Howard Levine said on a Jan. 8 earnings call. “When we look at the Family Dollar shopper, it is clear that she has continued to face economic headwinds even as the broader market has experienced a recovery.”
