December retail sales numbers from Commerce and NRF show modest gains

December retail sales were up compared to November and also on an annual basis, to data released today by the United States Department of Commerce and the National Retail Federation (NRF).

Commerce reported that December retail sales at $415.7 billion were up 0.5 percent compared to November and up 4.7 percent compared to December 2011. Total sales for the October through December period were up 4.2 percent annually. And for all of 2012 Commerce said that retail sales were up 5.2 percent compared to 2011.

NRF reported that December retail sales, which exclude autos, gas stations, and restaurants, were up 0.8 percent on a seasonally-adjusted basis from November and up 2.1 percent on an unadjusted basis annually. And for the holiday shopping season, which NRF defines as the months of November and December, retail sales were up 3.0 percent, which fell below its projected forecast of 4.1 percent growth to $579.8 billion.

“For over six months, we’ve been saying that the fiscal cliff and economic uncertainty could impact holiday sales,” NRF President and CEO Matthew Shay said in a statement.  “As the number shows, these issues had a visible impact on consumer spending this holiday season. We can’t expect consumers to continue to carry the burden of growing our economy—Washington must put political differences aside and do what it takes to get our country growing again and Americans back to work.”

With this number not meeting original expectations, NRF said it could translate into a difficult 2013 as consumers will need to more carefully contemplate making discretionary purchases while dealing with less money to spend from paychecks—due to the payroll tax increase that was part of the Fiscal Cliff agreement—and other household budget concerns, too. 

Even with relatively low expectations for the economy early into the New Year, there are some positive signs in the mix as well, including a slightly declining unemployment rate,
improving consumer confidence data, as well as encouraging automotive sales and housing data.

But at the same time these things need to be viewed with a certain degree of caution, too, in the light of overall weak GDP growth and declining manufacturing output in recent months.

As many economists continue to point out, higher job growth levels have the potential to boost retail sales—and overall—economic growth. But even with employment data showing some gains, it is still not yet occurring at a rate that has a meaningful impact on retail sales growth.

As previously reported, retail sales largely show slow and incremental growth, while continued growth is needed over a longer period, as consumer spending accounts for roughly 70 percent of U.S. economic activity. And while retail growth is relatively slow still, signals remain intact that the economy is showing some signs of recovery, with consumer confidence on the upswing to a large degree declines in gasoline prices over the last two months.

The continuing trend of slight or flattish sequential retail sales increases remains largely intact due to fairly even retail spending at a time when retailers remain cautious on the inventory planning side and postponing commitments until the until the economic outlook becomes clearer, while they are risking stock outages by having very lean inventories.

Even with retail sales up, a supply chain expert told LM caution remains the dominant theme when assessing these numbers.

“I think there is a heavy dose of caution being exercised throughout corporate America and supply chains,” said Mike Regan. “Every company is managing its business in terms of using extreme caution. As the retail sales numbers relate to freight, I think the market is fairly balanced right now in that there are some carriers with some capacity and reasonable rates. But if there was any type of economic expansion, rates could go up significantly.”

A research note from Diane Swonk, Chief Economist, Mesirow Financial, noted that consumers are still out there but are more cautious. She added that rebuilding associated with Sandy, combined with moderate employment gains, is likely to provide some support for consumer spending in 2013.

“We will need to see a major bounce back in investment, however, if we really want to see a pickup in momentum this year, and that includes housing,” wrote Swonk.