Dive Brief:
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Friday saw a slew of economic data that sent a chill through the markets and some economists’ outlook ahead of the long weekend. The U.S. Commerce Department Friday reported that core retail sales (excluding automobiles, gasoline, building materials and food services) fell 0.3% after a 0.5% gain in November.
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Also in December, apparel sales fell 0.9%, electronics stores saw sales fall 0.2%, and general merchandise stores sales fell 1%, the worst in nearly a year, according to the report. The Commerce Department also said that for all of 2015, retail sales rose just 2.1%, the weakest since 2009, after seeing a 3.9% jump in 2014.
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Meanwhile, the University of Michigan’s consumer sentiment index, while lifting somewhat since last month, is well behind the level it was a year ago, rising slightly to 93.3 from December’s 92.6, but below the 98.1 of a year ago.
Dive Insight:
While the Fed’s interest rate raise in December was supposed to be a sign of a humming economy, the University of Michigan’s Surveys of Consumers chief economist, Richard Curtin, says that it has served to make consumers more cautious, though he also said that consumer confidence will likely grow by 2.8% this year.
“Consumer optimism is now dependent on the continuation of an extraordinarily low inflation rate,” Curtin said in a statement. “Rather than welcoming a rising inflation rate as a signal of a strengthening economy, consumers are now more likely to reduce the pace of their spending and thus act to erase the Fed's rationale for higher interest rates.”
The failure of wages to rebound was also cited by many economists for the reason many consumers are pocketing their fuel savings rather than plowing it into spending on clothing, electronics, or other items. (And the price drops in fuel, which led to lower receipts at gas stations, also tamped down December’s retail sales number.)
The uncertainties felt by consumers have been compounded in recent weeks by reports of uncertain growth in China and stock market dips here. But retailers are also suffering from bloated inventories and uncooperative weather that, while not severe enough to keep shoppers out of stores, have failed to move winter apparel and gear.
While variables like wage growth are likely to remain important to consumer spending, the idiosyncrasies that led to December’s muted sales may matter less as the year progresses, some economists believe.
"Fortunately, there are good reasons to expect the soft patch in consumer spending to be temporary,” Jeremy Lawson, chief economist at Standard Life Investments in Edinburgh, told Reuters. “Solid employment growth and the gradual upward trend in wages will support healthy growth in disposable incomes through the year.”