Wednesday, January 18, 2023
Trajectory Is Weakening
The U.S. economy weakened in December. Overall spending in December fell over 1% month over month after a downwardly revised 1% decline in November. Lower sales on autos and at gas stations contributed over half of the decline in total retail sales.
The control-group sales fell 0.7% in December, revealing the economy slowed down in the final month of last year. The control group is the category the Bureau of Economic Analysis uses for gross domestic product (GDP) calculations.
Nominal online retail sales fell 1.1%, as online retailers discounted products to clear bloated inventories.
Investors like to transform this nominal report into an inflation-adjusted estimate that better corresponds to other real economic gauges. Deflated by the Consumer Price Index, real December retail sales fell 0.4% from a year ago, the second consecutive annual decline.
Momentum is slowing as the economy transitions into the new year. Consumers will have less support from surplus savings this year, which increases the risk that 2023 will be a tough year for economic growth. Furthermore, industrial production declined in December and was revised downward for November. However, if the job market does not materially deteriorate, a potential recession should be short and shallow.
A Slowing Trajectory
Consumer spending is slowing but investors need to wait until a more comprehensive spending report is released on January 27. Retail sales focuses mostly on goods, whereas the full spending report includes both goods and services. As shown in the chart below, annual growth rates for both real retail sales and real personal spending have slowed for most of this year.
The consumer is feeling the weight of slow wage growth and nagging price pressures. Weak retail sales in December shows consumers are likely retrenching during a time of economic uncertainty. Declining consumer demand and periodic discounting for some goods pushed down control-group sales, the category that directly feeds into the official GDP estimate. The trajectory for the U.S. economy is weakening and recession risks are rising for 2023. However, a potential recession would likely be shorter than average. The weak retail sales report does not change expectations that the Federal Reserve will likely increase rates by 0.25% at the February 1 meeting.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. For more information on the risks associated with the strategies and product types discussed please visit https://lplresearch.com/Risks
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
Securities and advisory services offered through LPL Financial, a registered investment advisor and broker-dealer. Member FINRA/SIPC.
Tracking # 1-05355851