A good time to look at seasonality and inflation/deflation in retail sales, especially as prices of goods have dropped.
By Wolf Richter for WOLF STREET.
January and February are the worst months of the year for retail sales overall. December is the best month of the year. In December, people go on the final stretch of the holiday buying binge. In January, gift-buying is over, and retailers get the returns (negative sales). In January, retail sales plunge from December. For department stores, sales in January collapse by nearly 50% from December, and this happens every year. Other retailers see less of a drop. Overall retail sales have historically plunged by 15% to 22% in January from December.
In January 2024, retail sales plunged by 16.6% from December. That was a bigger plunge than in January 2023 (-15.2%), but a smaller plunge than in January 2022 (-16.9%), and quite a bit smaller than in the years before the pandemic (between -18% and -22%). All annual low points in the chart are Januarys:
It happens every year, so massive seasonal adjustments try to iron it out.
In terms of economic reporting, retail sales are massively down-adjusted in December, with the result that seasonally adjusted retail sales in December (red in the chart below) are a lot lower than not seasonally adjusted retail sales, which spike to their annual high in December (blue). Conversely, in January, seasonally adjusted retail sales are massively up-adjusted.
And if nothing out of the 5-year average happens – no worse than an average winter storm, for example – the seasonal adjustments smoothen out December and January. If a worse than 5-year average winter storm blankets a bigger-than-average part of the country, and more than average people stay at home instead of buying stuff, then the seasonal adjustments are off.
Not seasonally adjusted, retail sales in January plunged by 16.6% from December, to $642 billion ( = actual retail sales), but they were up by 2.0% year-over-year.
Seasonally adjusted, retail sales dropped by 0.8% from December, to $700 billion ( = $642 billion in actual sales + $58 billion in seasonal adjustments). That seasonally adjusted total was up by 0.6% from the seasonally adjusted total in January 2023.
The two biggest retailer categories are New & Used Vehicles Dealers and Parts stores with $119 billion in actual sales in January, and Nonstore Retailers (mostly ecommerce) with $115 billion in January. Together they accounted for 36.5% of total retail sales. But their seasonal patterns are different.
For auto dealers, the best month of the year is typically in the spring, March, April, or May. Decembers are a middle-of-the-road month. And Januarys are the worst.
Not seasonally adjusted, sales at auto dealers and parts stores rose by 1.3% in January year-over-year.
But price declines have hit dollar-sales: The CPI for new and used vehicles in January dropped by 1.1% from December, and was down by 1.6% from a year ago, on a plunge in used-vehicle prices and flat new-vehicle prices, and we’ll get to that in a moment.
For nonstore retailers (mostly ecommerce), the best month by far is December, and January or February is usually the worst. Ecommerce has also experienced price declines across many of the goods categories sold at these retailers:
Deflation in goods that retailers sell.
Retailers sell goods, not services, and inflation in the US has shifted from goods to services in 2022, and many goods prices have been falling and continued to fall in January, as the latest CPI data this week showed.
Prices of durable goods have been falling since 2022. In January, the CPI for durable goods fell by 0.5% from December and was down by 1.6% from a year ago. This includes motor vehicles, appliances, electronics, furniture, etc.
Declining prices reduce dollar-sales, just like rising prices increase dollar sales. But adjustments for inflation compensate for those price changes. So adjustments for this deflation in these categories push up the inflation-adjusted retail sales in these categories.
Prices of nondurable goods have also been falling. The CPI for nondurable goods fell 0.5% in January from December and was up less than 1% year-over-year.
Nondurable goods are dominated by food and energy, but also include apparel, supplies, etc.:
- CPI for food bought at stores: +0.4% month-to-month, +1.2% year-over-year.
- CPI for gasoline: -3.3% month-to-month, -4.6% year-over-year.
- CPI for apparel: -0.7% month-to-month, +0.1% year-over-year.
Do these retail sales show that consumers “cut back?”
Consumers always cut back in January from December, as we have seen above. Retail sales are highly seasonal, and it sucks to be a retailer in January.
But the question is this: does this data show a weaking in “real” (inflation adjusted) consumer spending on goods?
Consumers have shifted their spending to services starting in 2022, with revenge travel being a big thing, still. But spending on services is not part of retail sales here.
And growth in spending on goods, adjusted for inflation, started slowing in 2022 from the pandemic free-money binge, and sometimes turned negative from the spending binge during the pandemic, but has held up surprisingly well, even in durable goods against all expectations. And “real” spending on goods is still running far above prepandemic trend, which was one of the factors why GDP was surprisingly strong in 2023.
Everyone has long been waiting for consumers to slow their spending binge. This was one of the big hopes in order to bring inflation down.
But today’s data on retail sales doesn’t show that. It shows that retail sales, not seasonally adjusted, were up 2.0% year-over-year, and with inflation adjustments, were up by more, somewhere in the 3% range year-over-year. And this is happening despite the shift of spending to services, which should have produced a decline in spending on goods already in 2022 and 2023 but didn’t. So for now, in light of today’s retail sales, I’m not worried about our drunken sailors just yet.
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I am a drunken sailor and need intervention.
Don’t worry, if you are in my club you will be fine. If you are not, you will soon be my debt slave. Keep drinking.
“I am a drunken sailor…”
You must be so proud.
Another nothing burger it seems, let’s see how much fun the MSM will spin this into…”Look, the sky is falling….”
Hate to admit it…maybe this time is different….judging by the ski line I had to endure at Mammoth for over an hour on a not holiday weekend…people are just flooded with money..
What part of the mountain did you ski? I used to ski there a lot. The lifts by the main lodge and the other lodge are always crowded. Chair 23 usually not too bad. Chair nine usually not bad either.
The line at the bottom of the gondola….it went all the way back to the other lift at the bottom..it was insane for a non-holiday weekend…guess $200 a day ticket is not scaring people off.
Mammoth lift tickets purchased on the day are $239. Insane I know, but a large portion of that line bought their Ikon passes ($1000 for unlimited days at Mammoth and 5 days each at dozens of world class resorts around the world) and are getting in as many days as possible after these latest storms. That Ikon deal is not insane for those that can do at least a few long weekends. Happy to see people spending on outdoor activities though. Getting exercise and improving their mental health. Money well spent! Better in my book than paying 1000k plus a month on a luxury car that no one is impressed by.
I have several local retailers as clients, the picture in the Coachella Valley is mixed regarding retail sales. Some are doing great, others not so much. Meanwhile, the restaurants and night clubs are full but the owners are still struggling due to inflation.
Regarding CRE, this morning we went to look at a light industrial building in foreclosure. The building is located in a nice industrial park that is well located near the airport. The industrial park has 50% vacancy, the last time I walked this park 3 years ago it was fully occupied. Granted, a tiny sample, but telling nonetheless. Meanwhile a Bloomberg article today gave a less than glowing report on CRE exposure with smaller regional banks.
Several of the regionals that my CRE lending business corresponds with are no longer responding to CRE loan requests. Their silence is deafening, and the last time this happened was late 2007. Do I have to remind you what happened in 2008?
We were skiing on Super Bowl weekend at Palisades Tahoe and the lines were not as long as the week before (I’m guessing lots of people didn’t make it up to attend Super Bowl parties in the Bay Area).
As a Boomer married to a GenXer it seems like most people our age are doing well (I was just talking to a friend that went to a Palo Alto High School reunion and they were joking about people that won the “Palo Alto Lottery”).
Palo Alto homes that sold for ~$1mm in the 1980’s are selling for over $5mm today so the kids with parents that never moved were recent “lottery winners” after selling the homes they grew up in for millions.
Here in Northern CA even lots of people that grew up “poor” neighborhoods like East Palo Alto and East San Mateo are getting more than a million dollars when they sell their parent’s houses (many of these people that never had a lot of extra cash are now spending like “drunken sailors” when they get hundreds of thousands of tax free dollars).
I get to know many of my tenants since I spend at least half my time out of the office at my apartments. Things are not going as well for the majority of young people most who didn’t have parents that paid for all of college and who don’t even think about ever playing golf or going skiing because of the high cost.
Ahh, the American leisure classes, skiing smugly past the graveyard yet another season. Silk shirts, $1K car notes & endless dinners out comprised of the the most expensive protein stuffed with the second most expensive protein on the menu.
Salad days, uber alles!
Heeding the old axiom “if it bleeds, it ledes” or “bad news sells” I remain a healthy amount of both skeptical & weary at the overwrought chicken little jazz playing out across a lot economics/business reporting the past few seasons. Still, there is a kind of collective sinking feeling that’s become increasingly harder to shake.
We need a house price crash of 80%.
Nah gonna happen. The world is returning to the very long-term median, where most folks are renters, not owners.
@kent..
I thought the same in 2009 and we know how things turned.
I don’t know if home prices would crash but what we have currently is not sustainable and is bad for society.
What is the profile of the buyers?
Some are doing well or so it seems and many others not in all areas of my metro area (high and low end and in between). Many are seniors. How do I know many seniors are struggling under inflation? Because I volunteer for organizations that provide help for those people. Also, everyone thought everyone was flush with cash back during the GFC. That turned out not to be true. Many people are overextended again, I can guarantee you as most people are not good money managers. Human nature does not change that quickly. I don’t care what the data says. I never trust the data coming out of our corrupt government, especially in an election year.
Nothing Burger here
Thanks WR for this report.
The markets are flirting with ATHs.
Home prices are marching towards ATH.
MsM is applauding all the above.
What can go wrong .
When I worked in sales a decade ago, it was common knowledge that you had to put away some of the commission you earned during the holidays, because January-March were slow months and you didn’t make as much.
Talking to newbie salespeople these days, that knowledge seems mostly forgotten.
I believe a lot of knowledge has been lost, not forgotten, in the recent churn. Lots of people have moved on to grab wage gains, we can see it in the data in Wolf’s labour articles, newcomers probably have the easiest market to get started in whatever career they want but they don’t have as many experienced mentors as previous generations. At least, this is what I see in trades so I’m just assuming it’s true for other industries.
At the retail side of my company, we just had someone quit because they’re “suddenly not making any money” vs a couple months ago… but this person only started in august.
Meanwhile, all the salespeople who have been around for years know how it goes w post-holiday sales volume (or lack thereof).
Step 1: Read Wolfstreet
Step 2: ?
Step 3: PROFIT!
Seriously though I am much enjoying this page and learning about $.
Thanks,
This is a good metaphor for how much of our population thinks about finance these days.
Next step … “and it’s gone!”
Those two episodes of South Park should be required viewing for everyone in school, along with pretty much everyone else.
Ned! They’re coming right at us!
Howdy Folks YEP, US Sailors should be hung over after Christ mas. I promise to Party On even should the FED lower in 2024…..Squirrels are loving these times….
Good article. 8th sentence from bottom “where” should be “were”.
Line I meant!
You should have written, “line 3 from the top of the last paragraph”. No worries; good catch.
No, lines are not a good measure either, because on my cellphone it’s in line #5 from from the top of the paragraph.
The formatting of the page changes with the device you’re reading it on.
1. I read in news that Japan unexpectedly went in to recession. Is that for real?
2. I read in news that UK went in to recession. is that real?
3. Bitcoin reached new peaks. S&P above 5000. People were claiming that 3000 was the peak.
I also read in the news that
1. Japan’s Nikkei nears record high
2. UK house prices set to go up another leg
Well I be
1. Japan’s Nikkei nears record high
Yes, it may finally go back to where it had last been in 1989.
We haven’t gotten a Japan focused or a guest article in a while.
I wouldn’t mind the return of one or both.
Japan articles don’t get a lot of reads. So I do them only occasionally.
Headlines were retail sales drop in Jan more than expected oil up slightly and the DJIA and Small cap markets jump . Stock market supply Demand and few are selling with traders in and out Daily.
The media loves to twist the data to fit their narrative and Thankfully Wolf points out Jan was a normal Jan . That data does not sell well and nothing to report does not provide clicks !
If I had written an article with the headline: “Tapped-Out Consumers Collapse under the Burden of their Credit Card Debt,” the article would have gotten 10x as many readers, and it would have gone viral or whatever. That’s how this world works, and the media have to make a living in this world.
I feel like I’ve been hearing that consumers are “tapped out” for the last year+. Talk about a broken record…
How about “stock market collapse imminent”, “housing prices set to collapse”, “job market set to collapse”, “buy gold/silver/bitcoin now!”.
So much nonsense. Which is why I start my morning with a fresh cup of Joe and Wolf.
Thank you for not creating these stupid click bait articles.
I agree doom and gloom headlines get more clicks and this is what set you apart from others.
I was listening to Bloomberg radio when this report came out. I could hear the joy in their voices and then the stock market shot off and bonds went down. Now reading this I see that it’s all a fake celebration. Thanks Wolf for clarity in all the noise.
Stocks are going up because they believe that fed would cut rates.
Fed also corroborated this through dot plot.
Fed also declares progress short of victory over inflation.
Stock market knows that Fed won’t do anything that would hurt the market.
You’re contradicting the Fed’s Bostic today, LOL. And he’s a dove.
I’ve already seen an article saying the drop in retail sales re-kindles expectations that the Fed may lower rates sooner.
FACEPALM!
That just means more speculation and asset bubble froth, and more chances of rate hikes. There has been no landing at all – this bloated pig is soaring at 35,000 feet and gaining altitude.
They are also trying to say the CPI report was an anomaly. Some food and gas are going up again noticeably. I’m so sick of wall street and wish some catalyst would cause its demise permanently. Yes, I’m one who wishes for a collapse. Sick to death of our corrupt economic system and can’t stand our excessive consumerism.
We just need true price discovery.
Not fed controlled market.
Per me financial conditions would be tighter only when 10 year yield goes above 6 percent or so.
This would happen when fed increases qt.
I am it sure how does fed front rate impact long term yields..
I don’t think it does.
Currently financial conditions are too loose.
I saw that the year over year data for retail sales was only +0.6% in the
January report. Not even adjusted for inflation, that # looks weak.
Y-Y data obviously takes out seasonal adjustments so it can’t be an error there.
What am I missing?
TrBond
“What am I missing”
a brain?
RTGDFA.
This is the best reporting of the January retail sales report I have seen.
I work for a large retailer in Canada. Fourth quarter earnings were announced recently, down nearly 70%. This is not an anomaly, I have access to detailed sales data nationwide, it’s become a persistent trend over the last year.
Durable goods might be slowly floating down but consumer spending, at least in Canada, is also stalling and we’re seeing more and more value shopping and less splurging. Add to that the fact that a lot of our inventory was purchased at inflated prices during the pandemic and is still sitting, unsold, at new lower prices. Profit margins are shrinking.
That’s Canadian Tire, I suspect (67% or so)
They’re likely downstream victims of the slow motion grind of Canadian mortgage renewals (those not on floating rates average around 5 year terms) which is about halfway through, resulting in a drop in discretionary spending due to big rate increases and the larger mortgage payments they require.
This process is likely to take at least another 18 months.
How come tires become a discretionary spending?
I was forced to shell out $1k last week for new set of tires.
Not by choice.. it would have become a safety issue.
Canadian Tire is a variety store with an inappropriate name. It’s more like a Walmart. Canadians love the status quo so even renaming it CT is too much effort.
Inflation is inevitable unless americans start to produce more of their own stuff…or they do without.
Today (on 2/15/24), Bostic gave a speech asking for caution before any rate cuts. He is giving reasons why inflation progress could be stalling or even inflation coming back. Lot of data points on that. He talked about overall economy has become less sensitive to Interest rate, he is kind of advising for holding the rates for longer to get same effect..
He is one of the doves. Recent talks may make him centrist, but still dovish member. If he is talking caution, I guess it speaks volume.
Yes, I also thought it was a good speech. A while ago, he saw 2-3 rate hikes in the second half. It seems to me that he is starting to backpedal on those.
There is a lot of crazy inflationary energy building up that is just waiting to turn into higher prices. And he mentioned that too.
Here is the entire speech:
https://www.atlantafed.org/news/speeches/2024/02/15/bostic–grateful-but-vigilant
Hey Wolf, I’m seeing on fintwit claims that QT has either ended or dramatically slowed, any truth to it?
None whatsoever. What has happened is the Fed’s balance sheet has stagnated in the past few weeks, and dropped less than it had last month, because of draws under BTFP. QT refers to the treasury and MBS runoff, which has continued as they said it would (although, in my opinion, way too slowly). However, BTFP draws (which will end next month) have offset QT, so the balance sheet hasn’t dropped as much.
NYguy,
Don’t ever go back to those lying effing idiots, that’s all I can say. If you do, that’s your own effing problem, don’t make it my problem. If you make it my problem, I will solve the problem my way.
My next update on the balance sheet will come on March 7, with all the February roll-offs on it. You will have to read that article to get the correct answer.
Here is the article for January, posted on February 1. Did you forget to read that and instead chose to get your brain polluted by those morons over there at nitwit or whatever?
https://wolfstreet.com/2024/02/01/fed-balance-sheet-qt-1-34-trillion-from-peak-to-7-63-trillion-lowest-since-march-2021/
Lol, surprised you haven’t keeled over from a massive stroke Wolf! There’s a lot of good info on fintwit, and save for a few I only follow guys that invest based on fundamentals. The others could be lying or they could just be misinformed but no reason to wig out.
“ seeing on fintwit claims that…”
Geez, if that is spelled right (I’ve never heard of them) it has “twit” right in the name. C’mon dude!
Wait until they find out that the rate hikes are ambiguous with respect to inflation, thanks to the interest income channel.
And that factor only gets more significant as US Federal debt gets larger, and the US Federal deficit is at record peacetime levels.
It’s the fiscal policy, stupid … (not you, SRK, the policymakers)
But consider this: if that interest income is re-invested rather than spent, that liquidity is still trapped.
Retail only holds a small % of treasuries for example, most are held by institutions.
I’m sure there are a good chunk of folks living off their interest income, but this spending is dwarfed by all the coupon payments being re-invested, I’d imagine.
“He talked about overall economy has become less sensitive to Interest rate”
This is starting to be my feeling as well. On Wolf’s previous article he said CPI has been holding at 4% for a few months now. I think recent wage growth has made it to where consumers can outspend inflationary price increases.
The current FFR did a great job of shocking the 8% CPI down quickly, but it feels like it’s stuck now. I think it’s going to take something dramatic to bring the CPI down any further. Not sure if the domino effect from a CRE “collapse”, for lack of a better term, will be that thing. I don’t think there’s any other warning signs in the overall economy to really look at. There could be a recession, but I doubt it will reach GFC levels.
I don’t even think it’s that they did such a great job. It’s more that the first steps are always easier. Think of the guy who weighs 300 pounds but should weigh 160. It’s easy to drop from 300 to 220 with a little work, but going the rest of the way gets increasingly harder.
FED has priced out working class from one of their most basic life essentials: Housing which provides stability to the populace.
IN my eyes, FED has failed utterly.
Stock markets going higher and higher is one thing but home prices going higher, making it most unaffordable market in the history is a crime.
MW: Wholesale prices register biggest increase in five months, PPI shows
Any balance sheet comments?
The reduction seems to have paused.
Only ignorant idiots say that QT has “paused” or “stagnated.” How many times do I have to repeat that the Treasury roll-off occurs mid-month and end of month. Mid-month was Feb 15, which was Thursday. The balance sheet that was released on Thursday was through close of business Wednesday, so the February 15th roll-off will be on the balance sheet on Feb 22, and it will be big. And then the second roll-off in February occurs at the end of the month, which will be on the balance sheet released on Thursday March 7.
This is what you people get for not reading my Fed articles, which explain all this. And instead you pollute these comments here with this ignorant manipulative crap concocted by braindead morons on sites for idiots.
This is the balance sheet through Feb 1, and read the article so you learn something:
https://wolfstreet.com/2024/02/01/fed-balance-sheet-qt-1-34-trillion-from-peak-to-7-63-trillion-lowest-since-march-2021/
Love drunken sailors especially the ones with tons of cash burning holes in their pockets. It takes a lot of jobs to keep them in a constant supply of endless vacation trips, expensive trinkets, yachts, planes and 7 figure automobiles.
You go guys!!
And I’d even go a step further – a lot of the areas that did show weakness did so mostly because of worse-than-usual weather in most parts of the country. This was all telegraphed by larger-than-usual draws on distillate inventories during the past 5 weeks. I honestly expected a headline print closer to -1.5%. It was weaker than expected only if you didn’t know what to actually expect!
There’s no reason to think that consumer spending won’t bounce back (and then some) in March & April.
Inflation will go higher. The Feds have No Control. Interest Rates will move much higher. My T-Bills are paying me 5.27% and I pay no city or State Taxes. Plus the SS tax laws lower the amount I owe the IRS. $34 Trillion Debt will take a long time to pay off. Retail Prices are going much Higher due to circumstances beyond interest rate throttling of the Monetary System. Food Prices are skyrocketing due to the Weather and J Pow and Company have No control over Mother Nature. I don’t care how the Fed Reserve disregard Food Prices in Core Inflation. Higher Food Prices will filter down to higher prices for everything else. The world is changing due to climate Change. More Interest Rates are on the Way. I never listen too closely to the Inflation Numbers. Bulls on Parade, Pocket full of Shells.
Interesting article. I was hunting around for data to try figuring out what is going on. I work for a small company that sells restaurant equipment and consumer durable goods. Been in business for 10 years, the last 12 months was strange but it held up fairly well with it slowing down in the fall, but still fairly good.
January was a slow but a bit above average……BUT…..February is turning out to be the WORSE February in 9 years! It’s as if someone turned a spigot off on the economy……Something is going on.
It’s February, the worst month of the year for retail. That’s what’s going on.
Walmart, which reported today, said that things are looking good so far this year. They’ve been through the seasons a few times and know what January and February are like across their product lines.