Demystifying The Confusing Retail Sales Report

Whether the December retail sales report is good or bad depends on your vantage point. Growth differs dramatically depending on the time horizon you use because of comps. There were also countervailing metrics versus expectations as data points that beat estimates had previous results revised lower and vice versa.

Before we get to the details of the report, the best way to summarize it is to review its impact on GDP growth estimates. Oxford Economics lowered its Q4 GDP growth estimate to 2.2% from 2.4%. That doesn’t sound like a bad quarter at face value, but 1.3% of growth is related to trade. That’s not solely an indictment on consumption growth. There should be other weak categories. The Atlanta Fed GDP Nowcast lowered its estimate from 2.3% to 1.8% because the retail sales report caused its estimate for real personal consumption growth to fall from 2.3% to 1.6%.

The Countervailing Aspects Of The Report

After reading the details of this report, you will probably come away with the fact that most of the details counteract, making the effort not worth it. However, it’s better to know the details than get tricked by charts one way or the other. Monthly retail sales growth mostly beat estimates, but October and November’s growth were revised lower, so it wasn’t a great report.

Headline monthly retail sales growth was 0.3% which missed estimates by 0.1%, but November’s growth was revised down a tick to 0.3%. The other categories were the reverse. Retail sales less autos growth was 0.7% which beat estimates by 0.2%, but November’s growth was revised lower by a tick to 0%. You shouldn’t be surprised that motor vehicles and parts had weak sales growth because the December motor vehicle sales report showed 16.7 million vehicles were sold which fell from 17.1 million. It had a 3.9% yearly decline.

Excluding autos and gas had 0.5% growth which beat estimates by a tick, but November’s results were revised lower by 2 ticks to -0.2% growth. Finally, the all-important control group had 0.5% growth which beat estimates for 0.4%. However, November’s growth fell 0.2% to -0.1%. Besides estimates being confusing, growth is confusing because quarterly growth was very weak, but yearly growth was very strong. Quarterly results had very tough comps and yearly results had the easiest comps of the cycle. Quarterly (headline) retail sales growth was -0.3% annualized which was the first decline since Q2 2013. However, Q2 and Q3 annualized growth averaged 7% which was an impossible to continue trend. There should be a rebound next quarter.

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