January 25, 2013
U.S. consumers stepped up nicely in December
ALEX CARRICK
Chief Economist, CanaData
Apparently U.S. consumers weren’t that alarmed by the fiscal cliff in December. They increased their retail spending by 0.5% month-to-month and 4.7% year-over-year, according to the Census Bureau.
Retail sales figures are adjusted for seasonality. Therefore, the November-to-December comparison is not distorted by the surge in shopping for the holidays. In other words, one doesn’t have to worry about “comparing apples and oranges”.
A year-over-year increase in current-dollar retail sales of 5.0% or higher is generally considered quite good. December almost reached that benchmark.
“Motor vehicle and parts dealers” is the largest sub-category within retail sales, accounting for nearly 20% of the total. In December, retailers in the auto sector saw a 1.6% improvement in their sales month-to-month and a year-over-year gain of 7.6%.
Autodata Corp. has been recording strong sales in the auto sector as well. Total vehicle sales in the U.S. in the final two months of last year exceeded 15 million units, seasonally adjusted and annualized. December’s figure of 15.37 million units was slightly down from November’s 15.54 million units, but it was considerably ahead (nearly +13%) of December 2011’s 13.61 million units.
Coincident with the pick-up in the U.S. housing market that is underway, sales by furniture and home furnishing stores in December were +1.4% month-to-month and +6.1% year-over-year.
Electronic and appliance store retailers didn’t fare as well: -0.6% month to month and +1.3% year over year.
A key trend-setting category, “non-store retailers”, which encompasses purchases over the Internet, maintained its good level of performance: +0.5% month-to-month and +12.6% year-over-year.
Consumers will be challenged to maintain their spending momentum in early 2013. The agreement on the new tax regime will see the nation’s wealthiest individuals and families paying more to Washington.
Plus, there is the elimination of the special 2% payroll tax deduction which will affect everyone. And there will be some unpleasant surprises at income tax time, for example, with respect to dividend taxes.
A larger worry, however, may be if the debt ceiling debate leaves the Treasury without sufficient funds for day-to-day operations. Then social security checks and payments to government and military employees will be in jeopardy. This will put a serious crimp in consumer confidence.
That would be a shame, because the U.S. economy — fueled by stronger housing starts, an energy sector boom and recent strong employment gains — has been on a much better growth path of late.
In a separate report from the U.S. Bureau of Labor Statistics, December’s all-items Consumer Price Index CPI advanced 1.7% year-over-year. The “core” rate of inflation, which eliminates food and energy, was +1.9%.
The often volatile energy sub-index was only +0.5% year-over-year and gasoline prices climbed an almost negligible 1.7% compared with December of the year before.
The current weak price regime won’t stand in the way of the stimulatory monetary framework that is in place, most obviously characterized by the Federal Reserve’s near-zero-percent federal funds rate.
The prospect of an improving U.S. economy is what the rest of the world has been waiting for. It’s within grasp, but not if the politicians fumble the ball.
For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog. His lifestyle blog is at www.alexcarrick.com
In the U.S., the change in the energy sub-component index was +0.5% year over year in December 2012. Gasoline was +1.7% year over year. The U.S. figure (CPI-U) is the All Items Consumer Price Index for All Urban Consumers.
Data source: U.S. Bureau of Labor Statistics (Department of Labor). Chart: Reed Construction Data - CanaData.
