Retail sales rose only 0.1% in December, after a 0.4% jump in November. The strong performance of retail sales in November and December has given a lift to total retail sales in the fourth quarter. It is nearly certain that consumer spending in the fourth quarter (+2.5%, forecast) will exceed that of the third quarter (+1.7%).

The key question is a similar momentum will prevail in the quarters ahead. Although retail sales advanced at a rapid clip in the fourth quarter, the year-to-year change shows a decelerating trend. The failure of income growth is a large part of the reason for a decelerating trend in retail sales. Going forward, gains in income and employment will be necessary to support the robust path of consumer spending.

From the details of the report, purchases of furniture (+1.0%), apparel (+0.7%) and building materials advanced in December, while that of general merchandise (-0.8%), online sales (-0.4%) and electronics (-3.9%) declined. Unit auto sales count in the GDP box score, which slipped slightly in December but auto sales rose at an annual rate of 36% in the fourth quarter vs. a 11.3% gain in the third quarter.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

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