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Car Buyers Drive Robust Retail Sales -- WSJ

14 Jan 2017 7:32 am
By Josh Mitchell and Suzanne Kapner 

American consumers finished last year spending at a solid pace, splurging on cars and pouring money into online shopping during the holidays, a sign the economy is on a steady footing as the country prepares for a change in the presidency.

Sales at U.S. retailers rose 0.6% in December from a month earlier, the eighth monthly increase in nine months, helping to extend the economy's long expansion. Retail sales rose 3.3% in all of 2016, faster than the prior year's gain of 2.3% and similar to the underlying trend during the expansion.

The holiday season is the most crucial part of the year for retailers, and the final months of 2016 coincided with a booming stock market and a pickup in Americans' wages. Measures of consumer confidence hit multiyear highs at the end of last year, too, helping to keep spending strong.

Two-thirds of all U.S. output goes to goods and services consumed by U.S. households, making the pace of consumer spending a key gauge of economic vitality.

A separate report Friday from the National Retail Federation, an industry trade group, showed holiday sales rose 4% in November and December, compared with the same period a year earlier. The government data showed a roughly 4% gain in sales in the final three months of last year over the fourth quarter of 2015.

"American consumers remain remarkably resilient, and after a slow start to the holiday season, retail sales picked up momentum," said Craig Johnson, president of consulting firm Customer Growth Partners. Consumers "are shopping at a rate not seen since the mid-2000s -- just not so much at the mall," he said.

Several trends are aligning to support spending. Worker wages have grown more quickly over the past year after a long period of stagnant growth, with average hourly earnings up 2.9% in December from a year earlier, Labor Department figures show. At the same time, living costs -- particularly for everyday items such as gasoline -- continue to grow modestly, giving people more money for shopping and travel.

Household wealth also hit a record in late 2016. A strong housing market enabled home values recently to recover all the ground lost in the housing crash. And the Dow Jones Industrial Average was up 13% last year. Those factors helped lift consumer confidence.

Household finances are also improved compared with a few years ago. Households collectively spent 10% of their disposable income in the third quarter paying down debt, hovering close to the lowest levelsince record-keeping began in 1980, Federal Reserve data show.

Still, the spending at year-end wasn't evenly spread, creating clear winners and losers.

Car sales helped drive holiday spending, as Americans took advantage of big discounts offered by the auto industry. Sales had moderated earlier in the fall, and car makers offered incentives over the holidays to encourage sales of passenger cars. The strategy largely worked, with the late-year surge lifting auto sales to another annual record.

Online stores had a big quarter as consumers continued to turn to e-commerce retailers such as Amazon.com Inc. The shift walloped brick-and-mortar outlets like Macy's Inc. and J.C. Penny Co. In all of 2016, spending rose 11% at online retailers and fell almost 6% at department stores, the government report said.

Last week, Macy's, Kohl's Corp., J.C. Penney and Sears Holdings Corp. each reported a drop in holiday sales. Macy's has earmarked 100 stores for closure and will slash more than 10,000 jobs. At Sears, the store closings numbered 150.

Macy's finance chief said in a recent interview that the closures would allow the company to focus on its best locations and funnel more money into ecommerce.

Kohl's CEO Kevin Mansell said sales were volatile during the holidays, with strong sales on Black Friday offset by weakness in November and December.

Despite the weak showing from department stores and a handful of other retailers, including L Brands Inc., which owns the Victoria's Secret chain, NRF CEO Matthew Shay said the overall results pointed to a strengthening economy.

"Retail mirrors the economy," Mr. Shay said. "And while there might have been some bumps in the road for individual companies, the retail industry overall had a solid holiday season."

Write to Josh Mitchell at joshua.mitchell@wsj.com and Suzanne Kapner at Suzanne.Kapner@wsj.com
 

(END) Dow Jones Newswires

January 14, 2017 02:32 ET (07:32 GMT)

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