People carry shopping bags when they visit a department store during the New York holiday season.
Eduardo Munoz | Reuters
According to the CNBC/NRF Retail Monitor for December, retailers posted solid gains last month to close out the holiday season.
But the data also show that the true state of consumer spending is now being clouded by a new factor: deflation.
The Retail Monitor, which excludes autos and gas, rose 0.4% in December from a 0.8% gain in November, the traditional start of the holiday shopping season. It is just below the long-term average of 0.6%.
The core retail gauge, which also excludes restaurants, edged up to a more modest 0.2% after a 0.7% gain in the previous month. For the year, Retail Monitor grew 3.1% and Core grew 2.4%.
Some rebound from a strong November was inevitable, and economists expect the economy to cool from excessive growth in the third quarter. One question is whether December marks the beginning of a long-awaited normalization in consumer spending.
Spending was clearly hampered by the slowdown in the housing industry. Three of the biggest negative categories related to housing:
- Electronics and appliances (-3.2%)
- Construction and garden supplies (-1.5%)
- Furniture and home furnishings (-0.9%).
Furniture sales have been negative in four of the last five months.
Traditional holiday-related retail categories fared better, including a 0.9% increase in convenience stores and a 2.6% increase in non-store retail, including online sales. Restaurants and bars posted a 1.5% increase, the best result since July.
Deflation
Another factor is deflation. Prices of goods, less food and energy, fell for six months in a row. From June to November, they fell by 3.7% year-on-year.
Retail Monitor found sales of clothing and accessories fell by 0.4%, but November’s CPI showed prices fell much faster, by 1.3%. December’s CPI, which will be released on Thursday, should show more clearly how prices have affected sales.
Wall Street is watching how retailers manage profit margins amid deflation and whether they can be as profitable when prices are falling as they are when prices are rising. The question is whether retailers can control costs and whether input prices fall faster or slower than selling prices.
Wall Street was bullish on retail SPDR S&P Retail ETF (XRT) they are up 21% since the end of October, despite some retracement starting in the post-Christmas trading days. Retail earnings will be released in early February, but some companies — such as Lululemon, Crocs and Five down — headed higher on better holiday sales.
A good, not great Christmas
In the two critical months of the holiday season, November and December, the Retail Monitor grew 3.7% and core retail gained 3.3%, so it was a good Christmas, not a great one. However, October and January last year surprised with stronger gains than November or December, suggesting that the entire Christmas shopping season could be longer than it traditionally has been.
The new Retail Monitor is a joint product of CNBC and the National Retail Federation based on data from Affinity, a leading consumer shopping intelligence company. The data comes from more than 9 billion annual credit and debit card transactions collected and anonymized by Affinity, representing more than $500 billion in revenue. Cards are issued by more than 1,400 financial institutions.
The data differs from the Census Bureau’s retail sales report because it is the result of actual consumer purchases, while the Census relies on survey data. Government figures are often revised when additional survey data becomes available. The CNBC/NRF Retail Monitor is not revised as it is calculated from actual transactions during the month. However, it is seasonally adjusted using the same program as the census.
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