United States: Retail Sales Were Sluggish Heading into the Holidays

Total retail sales growth came in slightly stronger than expected in November, beating the 0.6% Bloomberg consensus forecast. Upward revisions to October’s data were also welcome news. But take out motor vehicle sales, and the picture looks a little less rosy. November’s 2.6% monthly advance in vehicle sales was the biggest gain since January 2023, not counting the July number, which was overstated due to a dealership computer issue in June. Excluding motor vehicles and parts, retail sales edged up just 0.2% in November, half the consensus forecast.

The only other category that fared well in November was nonstore retailers. This is surprising, as we were expecting slower online sales growth since Cyber Monday was in December this year instead of November. Sales growth at other retailers was more modest, with grocery stores, clothing stores, department stores, and food services and drinking places even posting lower sales. Miscellaneous store retailers recorded the biggest drop. This decline in receipts can’t be blamed on lower prices either, as consumer prices were up in each of those categories on a monthly basis. There was more weakness in nondurable goods than in durable goods, even excluding cars. This should show up in monthly consumer spending and the GDP report. The decline in food services and drinking places, which was even worse in real terms, suggests services are struggling. But real consumer spending growth should be pretty solid for the quarter as a whole. A strong holiday shopping season is obviously critical for retailers and economic growth. The uptick in some confidence indicators since the November 5 election is a good sign.

We hoped industrial production would bounce back in November in the aftermath of the hurricanes and the end of the Boeing strike. Instead, it posted a 0.1% decrease, well below the consensus forecast for a 0.3% advance. Total production was down largely due to lower mining and energy production. But manufacturing was the biggest letdown, coming in just 0.2% higher, well below the 0.5% consensus forecast. Surprisingly, aerospace was down again, recording a 2.6% drop. On the upside, we saw gains in motor vehicles and parts (+3.5%) and machinery (+2.1%). Given the manufacturing construction boom over the past few years, the recent manufacturing trend has been somewhat underwhelming. It could get even worse if the new administration imposes tariffs and other countries respond in kind.

Apart from the good news on the automotive front, November’s retail sales and industrial production numbers were nothing to write home about. While previously released indicators may have argued in favour of the Federal Reserve staying the course, today’s data should support a 25-basis-point cut coming out of its meeting today and tomorrow.