Customers shop at a Kohl's store in Colma, Calif. On Friday, Dec. 13, the Commerce Department released U.S. retail sales data for November.Jeff Chiu/The Associated Press
U.S. retail sales increased less than expected in November as Americans cut back on discretionary spending despite a strong labour market, raising fears the economy was slowing a bit faster than anticipated in the fourth quarter.
The report from the Commerce Department on Friday bucked a recent raft of fairly upbeat data on the labour market, housing, trade and manufacturing that had suggested the economy was growing at a moderate speed in spite of headwinds from trade tensions and slowing global growth.
The Federal Reserve on Wednesday kept interest rates steady and signalled that borrowing costs were likely to remain unchanged at least through next year amid expectations the economy would continue to grow modestly and the unemployment rate remain low.
“Just as the Fed was in the middle of a victory dance, convinced they have returned the economy to a position of strength after just three rate cuts, the consumer waves a red flag,” said Lindsey Piegza, chief economist at Stifel in Chicago. “Any signs the consumer is waning could have sizably negative consequences for growth at year-end and into next year.”
Retail sales rose 0.2 per cent last month. Data for October was revised up to show retail sales increasing 0.4 per cent instead of climbing 0.3 per cent as previously reported.
November’s sales gains were meagre despite reports from retailers of brisk Black Friday business. Some economists blamed a late Thanksgiving this year compared to 2018, which pushed Cyber Monday shopping into December. The late Thanksgiving could also have thrown off the model that the government uses to strip seasonal fluctuations from the data, holding back sales.
Economists polled by Reuters had forecast retail sales would accelerate 0.5 per cent in November. Compared to November last year, retail sales increased 3.3 per cent.
Excluding automobiles, gasoline, building materials and food services, retail sales edged up 0.1 per cent last month after rising by an unrevised 0.3 per cent in October. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Consumer spending accounts for more than two-thirds of the economy.
Even accounting for the Thanksgiving-related distortions, retail sales have slowed considerably after rising by an average of 0.7 per cent per month in the first eight months of this year. Economists believe sales are cooling as wage growth has stalled despite the lowest unemployment rate in nearly half a century.
“As we have been asking, is this just noise or an early sign that cracks in the strong consumer story are starting to form?” said Michelle Girard, chief U.S. economist at NatWest Markets in Stamford, Connecticut. “We are watchful it is the latter.”
Consumer spending grew at a 2.9 per cent annualized rate in the third quarter. November’s slim gain in core retail sales left economists to expect that consumer spending would rise at around a 2.0 per cent rate in the fourth quarter. But slowing consumer spending is boosting inventories at retailers, which could limit the downside to fourth-quarter GDP growth.
EBBING TRADE TENSIONS
In a separate report on Friday, the Commerce Department said retail inventories excluding autos, which go into the calculation of GDP, increased 0.7 per cent in October after rising 0.2 per cent in September.
Growth estimates for the fourth quarter now range from as low as a 1.3 per cent rate to as high as a 2.0 per cent pace. The economy grew at a 2.1 per cent pace in the third quarter.
Economists did not expect a de-escalation in trade tensions between the United States and China to materially change the outlook for the economy in 2020, arguing that it would take a long time to reverse the damage caused by the 17-month trade war on sectors like manufacturing and agriculture.
President Donald Trump and Chinese officials said on Friday they had agreed to a “phase one” trade deal that included cutting U.S. tariffs on Chinese goods.
Stocks on Wall Street were mixed in volatile trade, with investors confused on the status of the U.S.-China deal. The dollar fell against a basket of currencies, while U.S. Treasury prices rose.
“It is unlikely that the so-called phase one agreement with China will change things significantly in the short run,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “There is little expectation that the next phase, where the real deals are supposed to be made, will happen and, if they do, when that would be the case.”
Last month, auto sales increased 0.5 per cent after rising 1.0 per cent in October. Higher gasoline prices lifted receipts at service stations by 0.7 per cent. Online and mail-order retail sales increased 0.8 per cent after advancing 0.6 per cent in October.
Sales at electronics and appliance stores increased 0.7 per cent. Receipts at building material stores were unchanged and sales at clothing stores fell 0.6 per cent. Spending at furniture stores edged up 0.1 per cent. Americans cut back on spending at restaurants and bars, with sales falling 0.3 per cent. Receipts at health care and grooming stores also fell. Spending at hobby, musical instrument and book stores dropped 0.5 per cent.
A third report from the Labor Department on Friday showed imported inflation remained subdued in November. Import prices increased 0.2 per cent last month, lifted by higher prices for petroleum products, after declining 0.5 per cent in October.
Import prices exclude tariffs. Last month’s increase in import prices was in line with economists’ expectations. In the 12 months through November, import prices decreased 1.3 per cent after dropping 3.0 per cent in October.