Retail sales rose 0.3% in November as the holiday season kicked off, reversing course from October’s negative print, but falling short of expectations. Sales less autos were unchanged in November, led by a 4.0% decline in sales at gasoline stations as prices fell. Lower gas prices provided a nice boost to consumers who were happy to spend that money elsewhere, but likely also held overall sales growth back modestly.
From a big picture perspective, today’s report reinforces the view that it’s a good – not great – holiday season for retailers. Sales are up modestly – a result that appears consistent with the modestly advancing economy as a whole.
The year-over-year pace of growth in sales isn’t bad, but is slower than last year, suggesting that consumers are spending somewhat more cautiously than they did a year ago. Lackluster income growth has also forced many households to decide whether to dip into savings to increase spending. For some, that has been the solution, as the savings rate has slipped again in recent months. Nonetheless, weak household income growth has clearly inhibited better results for retailers.
The recent improvement in employment related data and rising consumer confidence may be enough to provide a boost to consumer spending sufficient to close the year on an up note.
The fiscal cliff remains the big risk on the horizon, as Washington remains highly polarized with both sides seemingly unwilling to budge.
The risk to consumers in the New Year shouldn’t be overlooked, and retail sales may be vulnerable a few months down the line. With payroll and income taxes set to rise if Washington fails to reach a deal, many households will be facing cuts in take home pay that will undoubtedly crimp spending.