Apparently, however, everyone else procrastinated to the last minute as well, as the actual numbers for last month were not that great. Oh, the headline number was pretty good, with a 0.3 percent increase that was in line with expectations. But that number was largely flattered by an increase in building material sales, likely due to unusually warm weather. When you look at what is known as the “control group sales”—a better indicator of underlying consumer behavior, which excludes autos, gas, and building materials—sales were flat. As such, this result was much weaker than the expected 0.3 percent increase, and previous readings were revised downward. Plus, economically sensitive areas like clothing, electronics, and health and personal care all were down. This report raises a question as to how sustainable strong consumer spending growth will be.
That question is all the more urgent given a rare decline in spending in the fourth quarter. Along with this month’s result, the decline takes the quarter-on-quarter growth rate down to –0.7 percent in January. This result is a significant drop from last year. If it holds, it will indicate that consumer spending, the backstop of the recovery for the past 10 years, may be starting to flag. If that is the case, then growth is likely to slow even more in 2020 than in 2019.
Mind you, it’s too early to panic. Looking back to last year at this time, I said the following:
“One thing I do want to comment on, however, is the terrible retail sales report this morning. The headline index was down 1.2 percent. Plus, last month’s number was revised down from 0.2-percent to 0.1-percent growth. Today’s result was well below the expected gain of 0.1 percent. When you look further into the details, the sales ex-autos was down 1.8 percent, down from flat, and the sales ex-autos and gas was down 1.4 percent from growth of 0.5 percent. This is a big swing on a monthly basis, and the weakness is broad based among subcategories.”
As it turned out, of course, consumer spending growth picked back up, and we had another year of growth in 2019. What helped us then will also help us now: continued job growth, along with confidence that is at higher levels than was the case back then. And, of course, the January 2020 report was much more positive overall than the 2019 report. The likelier course is that consumers step back up to the plate on spending.
Still, the fact that spending appears to be pulling back on a multimonth basis, even as consumer confidence remains high and housing recovers, suggests that spending is something that is not as healthy as had been assumed. It is not time to panic, but it is time to be watchful.
It never makes sense to react to one data point, and that is where we are right now. With a healthy headline number and with job growth and housing doing well, there are multiple positive trends in place. You almost never lose money betting on the American consumer. Almost never is not the same as never, however, so I will be paying more attention to retail spending going forward. Just in case.