December’s preliminary retail sales release spooked investors who smell a recession. Normally, this would be a boost to stocks because of expectations that the Fed might start to adopt a more dovish stance. However, this represents the first time that investors have finally come to believe that Powell & company intend to keep interest rates inflated, even if hell freezes over.
Retail sales for December declined -1.1% month/month which represents a slight deterioration from a -1.0% decline in November – results sufficient to contribute to a -1.6% decline in the S&P 500 on the same day the release was made on 1/18/23. Of note was December’s -6.6% m/m drop in department store sales during the holiday season with speculation that this could be attributed to the rising cost of using credit cards (higher interest rates) or a very early gift buying season that started in October. Even online sales (nonstore retailers) declined -1.1% sequentially. Also of note was a -4.6% m/m decline in gas station sales (gas prices fell -12.7% in December) which should have provided consumers with more spending power. All this could suggest a slowing consumer if not for the elephant in the room in the form of an inconvenient arctic blast that blew through the country at the end of December. While it is impossible to gauge what effect this phenomenon had on retail sales during the month, it is sure to have contributed at least some pressure – more than likely a sufficient amount to explain the slight -10 basis point deterioration in retail sales between balmy November and December.