What’s behind the recent release of retail sales figures and what does it mean for the U.S. economy? Advance retail sales posted an unexpected 0.3 percent decline in December. However, a closer review of the data, including the prior upward revisions, suggests that the pattern of consumer spending in the final quarter of last year was still solid.
The dip in retail sales last month followed upward revisions to both the October and November retail sales readings to +1.2 percent and +1.8 percent, respectively. This, in turn, provided an as expected 7 percent rise in nominal retail sales for 2009:Q4, the strongest pace since 2007:Q4. A portion of the sharp swing between the November and December retail sales readings was likely related to weather which was mild in November and harsh in December. Second, a closer review of the auto sector in the retail sales report revealed distortions that should be partially discounted.
Although actual new light vehicle sales rose to an 11.2 million unit pace in December, up 2.7 percent from the 10.9 selling rate in November, the dollar volume of auto dealer sales captured in the retail sales report (which is based on survey data that also includes used vehicle sales, parts, and service) unexpectedly dropped 0.8 percent in December. The “softer” auto reading in retail sales last month might reflect either the failure of the retail sales survey to capture the end-of-year pick-up in promotion activity or it could be a sign that a greater portion of the rise in vehicle sales last month was business (fleet) sales that will get captured as business rather than retail sales. A third insight to this data is that the advance reading for retail sales often fails to initially capture internet sales and does not tabulate gift cards as sales until the gift cards are actually used. Accordingly, these events could have fueled temporary softness in the latest spending data.
Net, we would view latest retail sales data as a sign of two steps forward and one step back. The spending data still points to a solid four percent or so rise in real GDP in 2009:Q4.
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