Retail sales grew more than expected in December, posting their strongest performance since January 2023.

New construction trends were mixed in December, but the underlying trend suggests stability in aggregate with more strength in single-family homes. Existing home sales declined in December to the lowest level since August 2010, with the lowest inventory since March 2023.

Consumer sentiment measures show different trends so far in January. Winter weather, politics, and gas prices caused moods to sour over the last week. 

Consumers Spend More Than Expected

The initial retail sales report for December showed stronger-than-expected consumer spending. The 0.6% increase was better than the 0.4% increase expected.

The auto sector outperformed the rest of the retail market as sales excluding motor vehicles and parts increased by 0.4%, while sales of motor vehicles and parts increased by 1.1%. Category level performance was mixed. Sales for clothing and clothing accessories(1.5%), as well as nonstore retailers (1.5%), had the largest gains. Health and personal care stores (-1.4%) and gas stations (-1.3%) had the largest monthly declines.

Retail sales were up 5.6% from a year ago on a nominal basis, up from 4.0% in November and the strongest year-over-year performance since January. Compared to last year, the only two major categories of 12 that were down were gas stations (-6.6%) and building material and garden equipment stores (-2.3%). Motor vehicles and parts were up 10.3% from a year ago. Food services and drinking places (+11.1%) was the category up the most. Adjusted for inflation using the CPI, retail sales increased 0.2% for the month and were up 2.2% from last year.

New Construction Stabilizes. Existing Home Sales Drop on Low Inventory.

Residential construction was mixed in December with a reversal of the monthly trends we saw in November.

The seasonally adjusted annualized rate of starts declined 4.3% when a bigger decline of 8.7% was expected, but November’s increase was revised lower. Permits increased by 1.9%, which was better than the 0.7% increase expected and the prior decline was revised up. The decline in starts was in single family. Multifamily housing increased by 8.0%, and single-family housing declined by 8.6%.

After the December decline, total starts were up 7.6% from a year ago but were down 5.9% compared to December 2019.

Permits were up by 6.1% compared to 2019 in single-family but down by 4.4% in multifamily. The permit trends reflect stability and limited growth ahead for starts, as single-family increased by 1.7% and multifamily increased by 2.2%. Permits were up 6.1% in total from a year ago, up 32.9% in single family, but down 24.2% in multifamily. Permits lead starts, so the permitting pace at 1.495 million units was ahead of the 1.460 million starts pace, which indicates that starts should increase slightly in future months.

Existing home sales declined slightly in December to the lowest level since August 2010. The existing home sales SAAR declined 1.0% to 3.78 million from 3.82 million in November. At the December rate, existing home sales were down 6.2% from a year ago.

Inventory declined 11.5% to 1,000,000 units, up 4.2% year to year but at the lowest level since March. Inventory keeps moving quickly, as 56% of the homes sold in December were on the market for less than a month, and the typical time on the market was 29 days, up from 25 days in November and 26 days in December last year. The months’ supply of homes for sale declined to 3.2, about half of what is considered normal. The median sales price declined to $382,600, which was up 4.4% year to year.

Consumer Sentiment Mixed but Inflation Worries Decline

The initial January reading on Consumer Sentiment from the University of Michigan jumped 13.1% to 78.8 as views of current conditions and future expectations both increased substantially. Worries about inflation also fell as the median expected inflation rate over the next year declined to 2.9% from 3.1% last month, and the longer-term view of inflation declined to 2.8% from 2.9%.

The five-year view of inflation ties the September reading; otherwise, it was the lowest since September 2022. That is encouraging as it suggests consumers are not anchoring to a persistent level of higher inflation. Consumers’ views of buying conditions for vehicles have improved to the best level since July 2021.

The daily index of consumer sentiment from Morning Consult points to a small decline rather than improvement so far in January. As of Jan. 19, that index has declined 0.3% in January, as the daily index declined 1.1% from the week earlier. The decline in the last week aligns with severe winter weather across much of the U.S., the start of the presidential election, and average gas prices that increased 0.5% week to week, according to AAA.

Jonathan Smoke

Chief Economist

Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.


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