Economy Watch: Consumers End ’15 Hesitant to Spend

Consumers are starting off 2016 being more cautious with their spending, which is starting to impact U.S. retail sales.

The year is starting with mixed results about consumers and their spending patterns, which are critical to the health and future development potential of the retail sector. The relatively good news is that consumer confidence edged upward for the fourth consecutive month due to more positive expectations for future economic growth, according to the University of Michigan. Additionally, personal financial prospects have remained largely unchanged during the past year and are at the most favorable levels since 2007, largely due to trends in inflation rather than wages.

In fact, according to the Survey of Consumers’ chief economist Richard Curtin, expected wage gains fell to their lowest level in a year in early January, but that was more than offset by declines in the expected inflation rate. “Rather than welcoming a rising inflation rate as a signal of a strengthening economy, consumers are now more likely to reduce the pace of their spending and thus act to erase the Fed’s rationale for higher interest rate,” Curtin said.

That helps explain why U.S. retail sales dropped in December, falling 0.1 percent, according to the Census Bureau. Without gasoline and car sales, there was no drop, but no gain either, with retail sales coming in flat for the month. For all of 2015, retail sales rose 2.2 percent, the lowest reading since 2009; the rise in 2014 was 3.9 percent.

As usual, some retail categories did better than others in December. Sales were down 0.2 percent for the month and 3.8 percent for the year at electronics and appliance stores. Department stores eked out a month gain of 0.3 percent, but lost 2.1 percent of their sales year-over-year. On the other hand, sales jumped 0.9 percent at furniture stores for the month, and 6 percent for the year, while sporting goods stores also enjoyed a 0.9 percent uptick for the month, and 7.6 percent for the year.