United States: Retail Sales End the Year with a Bang

Once again, US households spent more than expected. The 0.6% gain came in higher than the 0.4% consensus forecast, offering further evidence of the ongoing resilience of US consumer spending. Consumer confidence also rebounded at the end of 2023, as gasoline prices dropped, market and retail interest rates fell, and the stock market posted solid gains.

Motor vehicle dealers, clothing stores and nonstore retailers also did well in December. But the big surprise was the 3.0% jump in department store sales. This sector had been on an uninterrupted downtrend for the preceding three months and ended up posting a 2.5% decline for all of 2023, despite the strong showing in December. In fact, for 2023 as a whole, the biggest decreases outside of gasoline stations and department stores were in the sectors that were most sensitive to interest rate hikes (furniture, electronics and appliances, building materials, and so on).

As we look more closely at the December data, slightly stronger-than-expected retail sales also gave real consumption a boost. Consequently, consumer spending on goods appears to have gone up considerably over the fourth quarter of 2023. Meanwhile, spending on services probably rose less, while food services seem to have fallen in real terms in December. We also expect demand for energy to have cooled due to unseasonably warm weather over the same period.

Industrial production also came in slightly above expectations in December, when a 0.1% pullback was expected. But this bright spot was dimmed by a downward revision of the data for the preceding month. Instead of rising 0.2% month-on-month in November, industrial production stayed flat. Despite a 1.6% pickup in the automobile sector, manufacturing growth was only 0.1%. In particular, primary metals and fabricated metal products, machinery and electrical equipment slipped. The 0.6% slide in manufacturing in 2023 reflects the weakness of the ISM Manufacturing index. But the positive impact of the massive investments in the manufacturing sector over the year has been slow to materialize in manufacturing output. 

Consumer spending still isn't showing many signs of slowing down in the United States. Some sectors have been more affected by higher rates than others, but the overall picture for 2023 was quite good all the way through to December. It remains to be seen whether more signs of weakness will show up in the new year.