Retail sales unchanged in December from November, closing out year on a lackluster tone

U.S. retail sales stagnated unexpectedly in December, concluding the 2023 holiday shopping season on a subdued note and raising concerns about consumer spending resilience amid economic headwinds.

According to Commerce Department figures released Tuesday, retail sales remained flat in December compared to November, falling significantly short of economists’ projections of a 0.4% increase. The November figures showed a 0.6% rise, indicating a sudden pullback in consumer spending as the year ended.

The disappointing December data, delayed due to the 43-day government shutdown, reveals a concerning pattern for retailers during the crucial holiday shopping period. Several retail categories experienced declines, including furniture and home furnishings stores as well as electronics and appliance retailers.

Few sectors showed growth, with building materials and garden stores posting solid gains. Gas stations and food and beverage establishments registered modest increases. Meanwhile, restaurant sales—the only service category included in the report—declined by 0.1%, adding to the overall weak performance.

The data aligns with souring consumer sentiment in recent months. Consumer confidence fell sharply in January, hitting its lowest level since 2014 as Americans grow increasingly worried about their financial prospects.

“Consumer spending has finally caught up with consumer sentiment, and not in a good way,” noted Chris Zaccarelli, chief investment officer for Northlight Asset Management in Charlotte, North Carolina. “This month’s data show that consumers are no longer relentlessly increasing their level of spending.”

The retail slowdown occurs amid mixed economic signals. U.S. gross domestic product expanded at the fastest pace in two years during the third quarter of 2023. However, the job market has cooled considerably, with employers adding just 28,000 jobs monthly since December—a stark contrast to the 400,000 monthly gains seen during the 2021-2023 post-pandemic hiring boom.

Economists are closely monitoring upcoming economic indicators. When the Labor Department releases January employment figures on Wednesday, analysts expect businesses, government agencies, and nonprofits added approximately 80,000 jobs—modest but improved from December’s 50,000 gain. Friday’s consumer price report will also provide crucial inflation data that could influence Federal Reserve interest rate decisions later this year.

The retail landscape continues to show significant divergence between winners and losers. Walmart, whose everyday low prices attract price-conscious shoppers from competitors, remains a top performer. Meanwhile, other retailers face mounting challenges.

A wave of bankruptcies and store closures has accelerated across the retail sector as companies reorganize or downsize to focus on profitable operations. On Monday, the operator of roughly 180 Eddie Bauer stores across the U.S. and Canada filed for Chapter 11 bankruptcy protection, citing declining sales and industry headwinds.

Last month, Saks Fifth Avenue’s parent company sought bankruptcy protection, struggling with increased competition and substantial debt from its acquisition of luxury rival Neiman Marcus just over a year ago. Days later, the company announced closures of most Saks Off 5th stores.

Even e-commerce giant Amazon hasn’t been immune to retail consolidation, announcing earlier this month the closure of almost all Amazon Go and Amazon Fresh locations as it refocuses on food delivery and its Whole Foods Market chain.

Thomas Ryan, North America economist at Capital Economics, suggested that despite current concerns, consumer spending could strengthen toward the end of the first quarter, potentially boosted by larger tax refund checks.

As retailers navigate this challenging environment, the coming months will be crucial in determining whether December’s flat sales represent a temporary pause or signal a more prolonged pullback in consumer spending that could have broader economic implications.