Auto sales and ecommerce drive outsized gain in Retail Sales

Summary

The November jump in retail sales owes much to the largest category of spending. Auto sales jumped 2.6%. The next-largest category, ecommerce, also notched a stout gain of 1.8%. No other category posted a gain of more than 1%, leaving our 3.3% holiday sales forecast right on track.

This will give policymakers something to talk about

For the sixth month in a row, retail sales came in better than expectations in November, this time for a gain of 0.7%. This comes as the FOMC is convened in Washington today for day one of their two-day meeting in the lead-up to tomorrow's rate decision. Financial markets widely expect another 25 basis point cut, but the impulse to remove restrictive policy could be growing less urgent. Discussion among policymakers is apt to include the strange combination of a cooling in the jobs market even as consumer spending continues to show solid growth. Recent upward revisions to productivity data make these seemingly counterintuitive developments make a little more sense, but big spending and a wobbly labor market do not typically go hand-in-hand.

It has been a hallmark of the current expansion that consumer vitality has been a mixed blessing for policymakers: Good in the sense that it sustained the expansion during periods when many were braced for recession. Bad to the extent that robust demand sustained price pressure making the Fed's 2.0% inflation target an elusive one. That said, the worst of the consumer-related price pressure is on the services side of spending, which gets only modest representation in the retail sales report. Bars & restaurants saw sales fall 0.4% in November, though the category is still up 1.9% over the past year.

Higher financing costs have not materially slowed spending in the service sector, although earlier on in this cycle they have taken a toll on big-ticket durable goods. That dynamic is less true lately. A key factor in today's out-performance is the 2.6% jump in auto sales (chart). Excluding autos, retail sales rose just 0.2%, which was half the expected gain.

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