Retail sales edged up a marginal 0.1% in December, well below many analysts’ expectations. But the numbers are consistent with the mixed results we have seen from retailers in recent weeks. Sales for November were revised up slightly but remained a disappointment. Even luxury retailers were forced to up the ante on discounts to keep customers coming through their doors. The combination of a drop in Wall Street bonuses and a slowdown in buyers’ finding deals also dragged on sales. At the high end, Tiffany & Co. reported that much of the weakness occurred in New York.
The weakness in spending was fairly broad-based with the exception of the auto sector, which is catching on up sales from disruptions caused by Japan’s earthquake earlier in the year. Easier financing deals also contributed; the auto industry is one of the few sectors where subprime credit is still alive.
Bottom Line: Consumers spent, but with caution over the holiday season, and are not expected to go on a binge anytime soon. This forced retailers to let go many of the hires that they had hoped to keep after the holidays was over, and underscores the challenges to growth we still face. Congress has yet to decide on tax cuts and unemployment insurance extensions beyond February, without which we will see a cut in incomes in March. This is to say nothing of instability in the Middle East and the crimp that higher gas prices are likely to place on consumer spending this quarter.