The health of the American consumer remains strong as outlays on retail sales closed out the year on a positive note with plenty of room for upward revisions.
U.S. December advance retail sales increased 0.3% on a month-over-month basis and was up 6% on a year-ago basis. The control group that is used to estimate household spending inside the GDP increased 0.5% month over month and 6.9% year over year.
But we want to caution against reading too much into those numbers. They were bolstered by comparisons to the collapse in holiday sales a year ago caused by volatility across asset markets.
That makes it harder to get a true reading on the advance retail data, which is why we prefer to use the three-month average annualized pace of retail sales to better understand household spending. That number shows that top-line retail sales advanced 2.2%, which is up modestly from the 2.1% in December, while the control group increased 1.2% on a three-month average annualized pace, which is unchanged from November. Based on this data, we are not changing our fourth-quarter GDP forecast of 2.1%.
One interesting aspect of the December report was the 0.2% increase in the proxy for e-commerce sales, which increased 0.2% month over month and 24.1% on a year-ago basis. This does not seem to square with explosion in Internet sales over the holiday. We think that there is ample room for upward revision in coming months.
The detail in the report does tend to suggest restrained spending on the month. While building materials increased 1.4% and clothing advanced 1.6%, outlays on retail items were solid elsewhere.
Spending on furniture increased 0.1%; electronics 0.6%; food, beverages and healthcare 0.4%; sporting goods 0.9%; general merchandise 0.6%; and eating and drinking establishments 0.2%. Spending on motor vehicles and parts declined by 1.3%. Outlays at gasoline stations increased 2.8% because of rising gasoline prices. Also important to note was that retail sales are not adjusted for inflation, so that increase in gasoline sales will depress overall spending through the inflation channel.
