Sentiment Trumps Shopping as Americans Buy Autos, Not Much Else

  • Retail sales unchanged last month excluding cars, gasoline
  • Consumer confidence hovers in January near almost 13-year high

How Disappointing Are the Retail Numbers?

Americans are bringing their newfound confidence to car showrooms but not many other stores.

Data released Friday put on display the gap between a surge in sentiment after Donald Trump’s election victory, and the household spending that makes up the biggest part of the economy.

The strongest gain in purchases at motor-vehicle dealers since April allowed retail sales to climb 0.6 percent in December -- yet excluding autos and gasoline, sales were unchanged, Commerce Department figures showed. Consumer sentiment hovered this month near an almost 13-year high, according to a University of Michigan survey.

While improvement in jobs and wages should continue to support consumers’ wherewithal to spend, the disparity between confidence and spending puts pressure on President-elect Trump and Congress to implement policies that deliver on their pro-growth campaign promises. The retail figures signal that consumer spending entered 2017 with less momentum than sentiment data suggest.

“On paper, the picture looks great -- the labor market is at full employment, wages are going up, credit conditions are loose,” said Thomas Costerg, an economist at Standard Chartered Bank in New York. “All that should point to a strong consumer spending picture, but that’s not necessarily what’s happening on the ground.”

The Michigan sentiment numbers show that Americans continue to expect that Trump’s administration will help kick growth into a higher gear with an agenda heavy on deregulation and tax reform. The index of the six-month outlook in January was near the highest level in almost two years and the measure of current conditions was the strongest in more than a decade.

Steady Spending

Even as retail sales fail to match the confidence gains, consumer spending is projected to keep a steady pace as the U.S. economy approaches what would be the ninth year of the expansion. Economists see household purchases increasing 2.6 percent in 2017, little changed from last year and enough to support growth of around 2.3 percent, according to a Bloomberg survey from Jan. 6 to Jan. 11.

Eight of 13 major retail categories showed gains last month, the Commerce data showed. In addition to gains at car dealers, demand improved at nonstore retailers -- a category that includes online sales -- as well as furniture stores and building materials outlets. Sales declined at department stores, restaurants and electronics and appliances merchants.

“Brick-and-mortar shops are struggling while Internet sales are booming,” said Costerg.

The rise in overall retail sales last month followed a revised 0.2 percent advance in November, the figures showed. Sales excluding car dealerships were up a more modest 0.2 percent, the slowest pace since August. Retail sales account for about half of overall consumer spending measured in gross domestic product.

Some economists see wage gains and job growth, along with sturdy levels of confidence, providing a boost to consumer spending even though last month’s sales were dominated by big automobile purchases.

“As auto sales have gained momentum, it is unsurprising to see other elements of consumer spending on goods pull back a bit as households absorb the hit to the wallet that comes with the initial cost of a big-ticket purchase such as a car,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., said in a research note.

— With assistance by Sho Chandra

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