US Retail Sales Stagnate in December, Revealing Underlying Weakness
U.S. retail sales showed stagnation in December, with no change reported from the previous month. This unexpected development indicates waning consumer spending, particularly on significant purchases such as motor vehicles. The slowdown raises concerns about economic growth as the new year unfolds.
Key Economic Indicators for December
- Core Retail Sales: A slight decline of 0.1% was observed.
- Previous Month’s Revision: November retail sales were revised down to a 0.6% increase.
- Year-on-Year Growth: Retail sales increased by 2.4% compared to December of the previous year.
According to the U.S. Commerce Department, October retail sales were also revised downward. The downward adjustment to a 0.2% decline indicated heightened consumer fatigue amid rising living costs. This is largely attributed to increased prices linked to tariffs on imports.
Impact on Economic Growth
The stagnation in sales, combined with a slight rise in business inventories, has led economists to reassess their growth projections for the fourth quarter. Forecasts were downgraded, suggesting slower economic growth as challenges persist.
Additionally, January’s frigid temperatures could further dampen consumer spending. While anticipated larger tax refunds due to tax cuts might offer some support, many households may prioritize savings over spending.
Consumer Sentiment and Spending Trends
- Decreased Spending: Significant reductions were noted in various sectors:
- Auto dealerships: down 0.2%
- Furniture and home stores: down 0.9%
- Clothing outlets: down 0.7%
- Electronics and appliance stores: down 0.4%
- Online Sales: Showed a modest increase of 0.1%.
The sagging consumer sentiment is reflected in the falling savings rate, which dropped to 3.5% in November—its lowest level in three years. The savings rate was considerably higher at 31.8% in April 2020.
Core Retail Sales Insights
Excluding autos, gasoline, building materials, and food services, core retail sales dipped by 0.1%, compounded by an adjusted 0.2% increase in November. This trend reveals a slowdown from the robust growth witnessed in the previous quarter.
The Atlanta Federal Reserve reduced its GDP growth estimate for the fourth quarter from 4.2% to 3.7% due to the recent weak performance in retail sales. Challenges such as diminishing savings and limited job opportunities are intensifying the pressure on consumer purchasing power.
Looking Ahead
Economists anticipate that while larger tax refunds may provide some fiscal relief, households will be cautious. Many are likely to focus on rebuilding savings and reducing debt, thus constraining overall consumption in the coming months.
Wages have seen minimal growth, recording a 0.7% increase in the fourth quarter. This was the lowest annual growth since mid-2021, further limiting disposable income.
Experts expect the Federal Reserve to maintain interest rates throughout the initial half of the year, providing a stable environment for economic recovery.
In conclusion, the stagnation of U.S. retail sales in December signals underlying economic weaknesses. As consumers navigate challenges, the focus on saving may shape spending behaviors in the months to come.
