**
Consumer spending in the United States displayed unexpected stagnation in December, raising alarms about potential economic headwinds. According to a report from the Commerce Department, retail sales during the crucial holiday season remained flat compared to November, which had seen a 0.6% increase. This shift could indicate a broader consumer pullback, driven by various economic pressures such as a weakening labour market and persistent inflation.
December Retail Sales: A Pause in Momentum
The latest data, released following a delay caused by last year’s government shutdown, reveals that consumer spending, a critical driver of the US economy, is losing its momentum. While sales experienced a year-over-year increase of 2.4%, this figure represents a decline from November’s 3.3% growth. The stagnation in December’s retail sales suggests that consumers may be reassessing their spending habits amid deteriorating economic sentiment.
Several sectors reported declines, particularly those vulnerable to trade tariffs. Furniture retailers saw sales drop by 0.9%, while clothing outlets experienced a 0.7% decline. These figures underscore the challenges facing consumers as they navigate a fluctuating economic landscape.
Economic Indicators and Consumer Sentiment
Economists express caution regarding the implications of the December data. Chris Zaccarelli, chief investment officer at Northlight Asset Management, noted, “Consumer spending has finally caught up with consumer sentiment, and not in a good way.” He emphasised that the data indicates a shift away from the prior trend of increasing consumer expenditure.
The outlook remains uncertain. Although December’s job creation was modest, the unemployment rate fell to 4.4%, suggesting some resilience in the labour market. Michael Pearce, chief US economist at Oxford Economics, posits that if job conditions stabilise, consumer spending could rebound, bolstered by the forthcoming tax refund season and the effects of the Federal Reserve’s interest rate cuts.
A Divided Economic Landscape
The retail sales report highlights a growing disparity within the US economy. High-income consumers continue to propel spending, benefiting from a robust stock market, while lower-income individuals are increasingly constrained by economic necessity. The Labour Department’s recent report revealed a slowdown in wage growth to 0.7% in the fourth quarter, the slowest rate in over four years.
Gregory Daco, chief economist at EY-Parthenon, observes that many Americans are prioritising essential purchases. While there was an uptick in sales for gasoline and building materials in December, discretionary items like electronics and clothing saw a significant decline.
Why it Matters
The stagnation in consumer spending during a pivotal month raises critical questions about the resilience of the US economy. With consumer expenditure accounting for over two-thirds of economic activity, any sustained decline could have far-reaching implications. Policymakers and economists will be closely monitoring upcoming economic reports for insights into whether this trend is a temporary setback or a sign of a deeper economic malaise. The balance between high-income and low-income consumer behaviour will also be crucial in determining the overall health of the economy moving forward.
