Real Retail Sales Turn Down Monthly And YoY In December, Boding Poorly For Employment

Real retail sales, one of my favorite broad-economy indicators, was updated through December this morning — still stale by one month, as under normal circumstances January’s numbers would have been released this week.Still, with consumer spending being about 70% of the entire economy, this is one of the most important economic reports of the month, and along with real personal spending, the two best measures of that sector. Further, because of their leading albeit noisy relationship with employment, they are particularly important right now, with job creation on the verge of turning down. Nominally, retail sales were unchanged in December, after a downwardly revised +0.5% in November. After taking the monthly 0.3% increase in prices into account, real sales were down -0.3%. Since there was no October CPI report, the best we can say about November is that in real terms sales (blue in the graph below) were higher by 0.2% compared with September: But so calculated, real retail sales in December were down -0.4% from their September peak. Further, if you believe, as I do, that the shutdown shelter kludge removed about 0.2% from consumer inflation during the September-November period, then the comparison becomes similarly worse.Note that the above graph also shows the similar but more comprehensive measure of real personal spending on goods (gold), which did make a new high as of its most recent report for November. Beyond that, real retail sales turned back negative YoY for the first time since September 2024. Going back 75 years (although I won’t bother with the long term historical graph), a decline in YoY real retail sales has almost always meant a recession (but both the obvious exception in 2023!): This is particularly salient because as I wrote above consumption leads employment. With the YoY comparison deteriorating in late 2025 and now negative, needless to say this bodes poorly for employment in the early months of this year. Here is the update of YoY real sales and real personal spending on goods (/2 for scale) together with employment (red):Last month I concluded that “This sharp deceleration in YoY growth in consumption forecast the slide in employment, and suggests that the jobs reports in the next several months will get no better.” This month’s report adds to the evidence. We’ll find out if that was true in January tomorrow.More By This Author:Expect Shelter Inflation To Continue Abating In The Next Few CPI Reports December JOLTS Report Shows Stabilizing At Near Stall Speed, Despite One Negative “Soft Data” Outlier Jobless Claims Rise, But Still Mainly Lower YoY