Broad-based weakness in U.S. retail sales for December shattered already fragile investor confidence ahead of midweek trading. Consumer spending failed the Litmus test, displaying weakness rather than strength. Economists surveyed by Bloomberg had projected that weakness in auto and parts sales in the prior month would weigh on the report overall, yet the drag was not only heavier than forecast, but also accentuated by a huge fall in gas station receipts.
Headline sales fell by 0.9% in December and more than the predicted dip of 0.1%. But excluding auto sales, spending fell by 1.0% rather than standing still as was expected. The impact of weaker gas prices did not seem to inspire consumers to go out and splurge on alternative items. The share of overall spending spent at gas station of 8.9% is the lowest since 2009 as the AAA daily national average price of gasoline fell to $2.50 in December from $2.88 in November and has since slumped to $2.10. For the past two years consumers have been accustomed to spending $45-billion each month at gasoline stations. In December, receipts were $6-billion lower freeing up close to what consumers spend in the smallest segments.
In December they spent $9.0-billion on electronics goods, $8.6-billion on home furnishings and $7.6-billion on sporting goods and books. The fact that the report fails to show redistribution of the gas bonanza is somewhat perturbing. And with the November report massaged slightly lower, one can see why investors are somewhat disappointed. Only four of 13-sectors in the report saw sales increase. The real arbiter here is the 10-year treasury yield, which has slumped to 1.81% following the report and significantly below the October spike created by the so-called bond-flash-crash that forced the yield briefly to 1.87%.
Chart shows gasoline prices reduce sector contribution to five-year low.