So much has happened this year that December’s downside surprise in retail sales didn’t come as much of a shock.
Headline retail sales were unchanged, the Commerce Department reported on Tuesday, missing the 0.4% increase economists expected. Our call for softer spending ahead of the release largely played out, especially the 0.1% drop in the control group.
Tariffs and the October government shutdown have shaken up spending patterns enough to weigh on retail activity in the final quarter.
Spending was pulled forward into the summer, bounced back in November after the government reopened, and then lost steam in December.
Sector performance was mixed. While building materials and garden centers increased by 1.2%, miscellaneous retailers and furniture stores declined by 0.9%, while clothing and accessories fell by 0.7% and electronics dropped by 0.4%.
Many expected a jump in spending ahead of the roughly $100 billion in tax refunds arriving soon. But there’s just too much getting in the way of that right now. The labor market has softened, which is weighing on confidence as job security comes into question.
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Additionally, the 2.4% annual growth in sales failed to keep pace with the 2.7% increase in the consumer price index.
Until tax refunds hit bank accounts, uncertainty is likely to keep consumers from spending ahead of time. It’s also unclear how much of those refunds will go toward paying down debt versus building up savings.
That said, we expect the refunds to provide a meaningful boost to demand and overall economic activity. We just see that impact showing up later—and spreading out over several months—rather than as a short-term spike.
