December 14, 2016— U.S. retail sales slowed down for the month of November, but are still on track to add to growth in the fourth quarter. November retail sales increased 0.1% in November from the month prior. This was a more muted increase than the market expectations of a 0.3% increase. Excluding autos and parts purchases, the gain was 0.2%. Importantly, the monthly retail sales change from September to October of this year was revised down from a colossal 0.8% to a still strong 0.6%.

The month-over-month change in retail sales tends to be very volatile. Using the 3-month annualized rate of growth shown below (figure 1) helps to smooth some of that volatility. The 3-month rate is moving up because a dip in August is moving out of the calculation and is replaced by November’s positive number, as well as stronger figures in September and October. We are generally seeing an improvement in recent months compared to a slowdown witnessed during the summer. Retail sales are about one third of total personal consumption expenditures, with the other spending on services and other items. The consumer remains quite strong thanks to continued job and wage growth and we expect growth to continue. However, we expect consumer spending to be less a part of overall GDP growth going forward and expect business investment to pick up. 

Figure 1

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Source: Bloomberg

Retail Sales Components

We also note the ongoing structural change in the U.S. consumer. Sales at non-store retailers, which are driven mostly by online merchant activity, increased by 0.1% from the month of October to November and are now 11.9% higher than a year prior. E-commerce is becoming increasing popular when compared to traditional retail stores and there is a continued shift by consumers towards internet shopping.

Figure 2 shows the longer term impact of online shopping. It shows total retail sales as well as three selected categories indexed to the start of the recession in December 2007. Total retail sales recovered to their pre-recession peak in early 2011 and are now about 22% above that level. Electronics and appliance stores have yet to regain their pre-recession peak. Strikingly, non-store retailers, driven by online shopping, is more than 80% higher than at the end of 2007.

Figure 2

grph_retailbase07.png

Source: Bloomberg, WTIA

Core Narrative

 

Retail sales data this week supports our core narrative of continued consumer spending. Sales decelerated in a month that included the presidential election, but we are optimistic that consumer spending will continue through the holiday season. Separately, the University of Michigan’s Consumer Confidence Index for the month of December reached its highest level in almost two years, which suggests that real consumption will continue to grow over the coming months. The positive data supports our mild overweight to risk assets.

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