After last week’s soggy payroll jobs report, there was a distinctly better tone to retail sales news this morning. True, December headline sales rose only 0.4%, with our control measure (excluding cars, building materials and gasoline) up an equal amount. However, that was on top of a 0.6% upward revision to November sales gains that were already strong even prior to the revisions.
As seen in the accompanying chart, the parlay of November and December gains pulls the six-month annualized growth rate for the control measure up to 7.1%, from 3.7% only two months ago. So, yes, today’s news overall was right in line with the positive retail release of a month ago. Meanwhile, sales grew at virtually all store types, with especially good growth at grocery stores, clothing stores and online merchants.
We have been forecasting only stable consumer spending growth, because household income growth has actually been decelerating for the past two years, and recent interest rate developments have been at best a neutral for consumers. True, stock market gains have driven robust growth in household wealth growth, but our experience has been that this is mostly an “upper strata” indicator and not a reliable driver of consumption trends. Meanwhile, the recent tax bill augurs well for corporate investment, but is of dubious merit for households, and consumer spending on services actually looks to have slowed lately.
So, why the November/December pop in sales? Well, it was the holiday season, after all, and who isn’t up for a Christmas binge? Our guess is that retail sales growth will slow again with the new year when households receive the bills for their holiday spirit. Still, we can enjoy the sales growth while it is here.