How the American Shopper Silenced Doubters U.S. consumers propelled the economy forward in 2023. They aren’t done yet.
The Commerce Department on Wednesday reported that retail sales rose a seasonally adjusted 0.6% in December from a month earlier, putting them 5.6% higher than a year earlier. The report was stronger than many economists had estimated, leading them to raise their estimates of fourth-quarter gross domestic product. (…)
Retail sales data are not inflation adjusted so, when looking at the Wells Fargo table, remember that CPI-Durables declined in each of the past 7 months (-0.5% in December) and are down 1.7% YoY.
Control Group sales surged 0.8% MoM in December after an upwardly revised +0.5% in November.
The biggest monthly gains, in fact, were reserved for some of the categories that comprise holiday shopping. The biggest percentage gainer was department stores where cashiers rang up 3.0% more sales in December. Clothing stores tied for second place with a 1.5% increase in December. Clothing store sales were up 4.3% over the past year which means that more than a quarter of all last year’s sales at clothing stores occurred in December, at least in dollar terms. (…)
Total retail sales growth is back in line with aggregate weekly payrolls (employment x hours x wages), up 5.4% YoY in December, suggesting that Americans keep buying goods even as they shift towards services. The continued momentum in labor income suggests that the U.S. consumer is not about to retrench soon.
Indeed, hourly earnings rose 5.4% annualized in December…
… helping aggregate weekly payrolls rise 5.4% YoY in December and 5.2% in Q4, only slightly slower than the 5.7% gain in Q3. Consumption expenditures should thus keep rising nicely given PCE inflation well below 3% in Q4.
All this tightening, and demand remains strong.
- According to CivicScience, “consumers ended 2023 feeling increasingly optimistic about the short-term future of their overall financial health.” (The Daily Shot)
Source: @CivicScience
The strong retail sales caused the Atlanta Fed’s GDPNow estimate for Q4’s real consumer spending to rise from 2.6% to 2.8%, taking the Q4 GDP growth estimate to 2.4%:
And BTW, goods deflation should continue for a while as Ed Yardeni explains:
China’s recent GDP, retail sales, and bank loan reports all confirm that China’s economy is weak, which helps to explain why the price of oil isn’t soaring. China continues to export deflation to the US and the rest of the world. Today’s report on import prices showed that these prices for Chinese goods fell 3.0% y/y during December, weighing on the core CPI for goods in the US.
The very strong retail sales at the end of the year are setting the stage for a better 2024 for manufacturing as merchants’ inventories, boosted by double and triple ordering during the pandemic years, have likely been reduced at yearend.
This should help gradually revive new goods orders and production.
Excluding the automotive sector, whose production was disrupted by the UAW strike, US factory output contracted for a sixth consecutive quarter in Q4. As today’s Hot Chart shows, this is one of the longest contractions recorded since these data began to be compiled in the late 1960s. It’s also worth noting that, with the exception of 2015-16, such long-lasting contractions have only been observed during recessions. (NBF)
Also helping China, BTW. We might have had a first indication of that in S&P Global’s PMI release last month:
The slight uplift in the headline index was partly due to a stronger rise in new orders during December. Although modest, the latest increase in overall sales was the quickest recorded since February. Companies often mentioned that improved market conditions and greater client spending had supported the latest rise in new work. At the same time, the downturn in new foreign sales moderated in December, with new export business declining at a marginal rate that was the weakest in six months. Higher amounts of new orders led manufacturers to raise output for the second straight month in December. The rate of growth was the most pronounced in seven months, albeit modest overall.
Europe Car Sales Drop in December Led by EV Slump New-vehicle registrations fall for the first time in 17 months
New-vehicle registrations declined 3.8% to 1.05 million units last month, the European Automobile Manufacturers’ Association said Thursday. Sales slumped nearly a quarter in the region’s biggest market Germany after EV incentives ran out, weighing on growth in other key countries.
Elevated borrowing costs, a sluggish economy in parts of Europe and growing pessimism around EVs are clouding the industry’s outlook. Bloomberg Intelligence is predicting sales growth this year to slow to 5%, from 14% in 2023. (…)
Tesla Inc. slashed prices for its best-selling Model Y in markets including Germany, France and Norway this week. The US carmaker is planning to temporarily halt production of the vehicle at its plant near Berlin, citing logistics issues sparked by the fighting in the Red Sea. Last month, Audi said it’s paring back its EV rollout.
The strong decline in Germany, where EV registrations nearly halved last month, outweighed growth in markets including the UK, Spain and France.
EV sales rose 28% last year in the region, but slumped by a quarter in December amid falling registrations for battery-powered cars also in Sweden, the Netherlands and Croatia. The European Union recorded its first monthly drop in EV sales since April 2020, the height of the pandemic. (…)
A wave of 35 new battery-powered models to be introduced this year will provide customers with a more affordable choice, possibly allowing carmakers to bolster their brand and market position, the Bernstein analysts said. (…)
John Authers: That Thunder Out of China Is Loss of Confidence
(…) As this chart from Oxford Economics’s Louise Loo shows, the property sector has been by far the weakest link in China’s investment:
(…) Property weakness makes consumers reluctant to spend their money and attacks confidence. (…)
As it is, China’s consumers have increased their savings rate again, less than a year after the economy reopened from the draconian Covid-Zero lockdowns. Falling property prices, making people feel less financially secure, may be to blame. That’s illustrated by Oxford Economics: (…)
But we should not lose confidence on the Chinese consumers. They have restored their balance sheet and they have a lot of cash:
Chinese authorities seem to be finally properly addressing the real estate problem. A slow process that will eventually restore Chinese confidence and make them spend and invest again.
Investor confidence could then return. Meanwhile, this is a cheap market with no momentum in search of catalysts. Whether China is morally or ethically investable is another question being asked by more and more people…
- Dimon Says China Risk-Reward Equation Has ‘Changed Dramatically’
- China Downplays Big Stimulus in 2024, Testing Investor Patience
Chinese Premier Li Qiang gave his clearest signal yet that Beijing won’t resort to huge stimulus to revive growth amid the worst bout of deflation in decades. Another batch of troubling data is testing the patience of investors who worry Beijing is behind the curve.
(…) In portraying the economy’s trajectory as a success, Li stressed that officials did “not seek short-term growth while accumulating long-term risk” — a veiled reference to Beijing’s old methods of powering growth by borrowing heavily and funding the now-overheated real estate sector. (…)
Arab nations develop plan to end Israel-Hamas war and create Palestinian state