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  Dr. Sohn's Commentary

Retail Sales in December

January 12, 2018

Retail sales rose 0.4 percent in December. October and November sales were revised up. Auto sales rose 0.2 percent. Ex. Auto and gas, sales rose 0.4 %. Building material rose 1.2 percent. Core sales, excluding auto, gasoline and building materials, rose 0.3 percent. Sales of the control group, used for estimating GDP, increased 0.3 percent.


Retailers saw a healthy holiday shopping season. The November and December sales were the best since 2010. The sales of retail control group---excluding food, auto, building materials, gasoline--- jumped 8.9 percent compared to 3.4 percent  during the third quarter. Not surprisingly, online retailers outdid the brick-and-mortar stores. Non-store sales rose 1.2 percent after 4.2 percent surge.


Economic fundamentals have improved.  Employment gains have been healthy. Wage gains has begun to accelerate. Consumer confidence has marched upward. Low interest rate, the healthy stock market, rising property prices, etc. continue to provide tail wind for consumer spending.


Auto sales have tapered off since its peak in September. During much of 2017, auto sales had been a bright spot. The strong car sales were sucking oxygen out of the rest of retail sales. The replacement demand from the aging fleet was a source of strength for the industry. Potential buyers were out pounding the dealer lots trying to take advantage of low interest rates and bargain promotions to replace the aging vehicles. As the year progressed, auto sales lost some steam and non-auto retail sales gained momentum. 


Looking ahead, consumer spending should be a driving force for the economy.  One concern, however, is the dip in the savings rate. Since the falling savings rate can’t support retail sales indefinitely, the future outlook for retail sales could be moderate. 

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