Monday, December 18, 2023

Consumers strong in November. But not guaranteed to be Happy Holidays at stores

Right after we found out that inflation stayed in check in November, we also found out that consumers kept spending in stores for the start of the Holiday Shopping season.
U.S. retail sales unexpectedly rose in November as the holiday shopping season got off to a brisk start amid deep discounting, likely keeping the economy on a moderate growth path this quarter and further alleviating fears of a recession.

The rebound in retail sales reported by the Commerce Department on Thursday underscored consumers' resilience, thanks to a strong labor market, and cast doubts on financial markets' expectations for a rate cut as early as next March….

Retail sales increased 0.3% last month after falling 0.2% in October, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales edging down 0.1%. Retail sales are mostly goods and are not adjusted for inflation.

Sales increased 4.1% year-on-year in November. Though the pace has slowed as households adjust to higher borrowing costs and prices, it remains sufficient to ward off a recession.
And that 0.3% likely understates the true strength of the retail side for November, because lower gas prices dragged down that number due to the lack of adjustments for inflation. In fact, if you take out gas prices, retail sales rose by a robust 0.6%.

The gains and losses in retail have been dispersed quite a bit among the sectors, both for the (seasonally adjusted) figures in November and over the last year.

I note that department and big box stores are the biggest decliners next to the deflation-influenced drop at gas stations. And some of that seems to be a general turn-away from shopping at brick-and-mortar stores (which explains the drop year-over-year), and especially since people don’t go into stores for the Holiday Season in these times compared to years past.

I think that the seasonal adjustments haven’t caught up to that reality, which is shown by the fact that significantly more sales still happened at those places in November, but it’s not the level of increased activity that the models think should happen. Conversely, the falloff at Bars and Restaurants wasn’t as much as in a typical November, which also likely reflects that things aren’t as seasonally-volatile as before.

Now, November certainly isn’t the entire Holiday season. And with reports of retailers extending sales well into December, that might portend a lower number in the next retail sales report. Or maybe it’s just more of a reflection how changes in shopping habits and trends have accelerated in the post-COVID world.

But at least through last month, consumer spending seemed to be holding up well overall in America. And with prices seeming in check while jobless claims stay low, I’d say that’s a pretty good situation to be in.

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