Based on nothing more than the headlines, it would be easy to conclude the average consumer fell off a cliff in January. A rising stock market and rising wages sent spenders to stores in droves near the end of last year, with December’s retail spending up firmly (at least as initially reported). Indeed, with consumer confidence at or near record levels and consumption growth being red hot, things looked impressive. Now all of a sudden they don’t.
Fear not. Wednesday’s headlines about last month’s retail spending and misleading at best, and deceptive at worst.
What the headlines and articles aren’t fully explaining: January’s retail spending is being compared to December’s retail spending. It matters.
The knee-jerk reaction to that truth is, “well of course last month’s spending was off compared to the month’s that included the busy holiday-shopping season,” but that’s not quite how it works. The data the U.S. Census Bureau publishes makes an adjustment for seasonality, accounting for the inevitable lull from one month to the next. On an adjusted annualized basis, spending did slide 0.3% when factoring in car sales, and were only flat when taking automobiles out of the equation. That’s concerning.
That seasonal adjustment and the annualization of the data, however, isn’t a perfect adjustment, as the fluctuating costs of food and gasoline still can’t be perfectly factored into the calculation.
It’s also a somewhat meaningless comparison. A far more meaningful comparison of January-2018’s retail consumption would be against January-2017’s consumption. In that light, retail spending was up about 3.6% by most stratifications.
That’s still down from December’s growth pace, to be clear. But, it’s being compared to a very, very tough Janaury-2017 comparison. That month, year-over-year retail spending grew more than 5% on most fronts, setting the bar very high for last month.
The raw annualized (and seasonally adjusted) data chart makes much more sense of what’s really going on in shoppers’ minds, and with their wallets. Some of the ongoing rise in spending has to be attributed to inflation. Much of it, however, is an indication that buyers are willing and able to spend more of their disposable income.
The point is, don’t draw any dire conclusions without the proper perspective. Consumers are still – surprisingly – resilient.
Of course, the market meltdown didn’t really unfurl until the beginning of February. The real litmus test will be given a month from now.