Retail Sales End 2024 in Good Shape
(…) Retail sales rose 0.4% in December and November sales were revised higher. Sales growth was fairly broad based. Since these data are reported nominally, the large gain in gasoline sales likely has a lot to do with higher prices at the pump in December, as seen in yesterday’s CPI report.
Weak sales were relatively concentrated in December. The largest drop came from sales at building materials & garden stores, which marks the third consecutive decline and largest in nearly a year.
But it’s the pull back in restaurant sales that give us the most pause. December is the first time in nine months that restaurants have reported a drop in sales. It comes on a weak November gain and amid higher food prices in December, meaning inflation-adjusted or real restaurant sales were even lower.
In excluding these three components, control group sales, which is a good proxy for broad goods spending in GDP accounting, rose 0.3% and is consistent with broad real personal consumption expenditures rising at around a 3% annualized rate in Q4. We’ll ultimately get a full look at services-spending with the personal income & spending report later this month, but the drop in restaurant sales specifically potentially signals some pullback on discretionary-services during the holidays to fund gift purchases.
Source: U.S. Department of Commerce and Wells Fargo Economics
Holiday sales, which we define as total retail sales excluding sales at auto dealers, gasoline stations and restaurants that take place in the months of November and December rose 4.1% over last year. (…)
Ecommerce continues to be a strong driver of holiday sales, with sales at nonstore retailers up 6.0% year-over-year through December. (…)
Auto sales jumped 8.4% YoY in December to 16.8 million units (saar), a new post-pandemic high. This after the latest Fed Beige book said that “Vehicle sales grew modestly”. This Fed is too modest.
On a YoY basis, December retail sales rose 3.9% while my retail inflation proxy was up 0.1%, the first positive reading since April 2024. For Q4 as a whole, sales were up 3.7% and inflation –0.5%.
In real terms, December sales were the weakest since April 2024, down 0.2% MoM after +0.8% in October and +0.4% in November. Not worrying given trends in nominal labor income (+5.0% YoY, black below) and inflation contained to around 3.0%.
The Atlanta Fed’s GDPNow is now at +3.0% for Q4, driven by a 3.7% increase in consumer spending on goods, revised up from 3.3% after retail sales was released today.
BTW: “Speaking of demand for goods, January’s Philly Fed regional M-PMI rose from -10.9 to 44.3, one of the highest readings on record. Shipments and new orders both rose to multiyear highs. The average of the New York Fed and Philly Fed regional surveys, which correlates with the ISM national M-PMI, jumped to its highest reading since 2021. A rolling recovery for the manufacturing sector may be underway.” (Ed Yardeni)
Remember my “What if” comments last November:
- What if this buoyant consumer, nearly 70% of GDP, coupled with recent and coming policies, triggers a U.S. manufacturing revival boosting its contribution above its current 10-11% of GDP?
- What if vehicle demand and production start to contribute to growth?
BTW #2: U.S. non-fuel import prices rose 0.1% MoM in December. Goods imports inflation is still low at 1.8% a.r. in the last 4 months but goods deflation is a thing of the past. Imported goods prices were up 2.4% YoY in 2024 after –0.8% in 2023.
Trump Treasury Pick Says China’s Economy Is in Recession
Scott Bessent, President-elect Donald Trump’s nominee for Treasury Secretary, described the world’s No. 2 economy as being in a recession, if not a depression.
Bessent, in further bearish remarks, also described it as the most imbalanced economy in the world, where the military is put first and where authorities are trying to export cheap goods to the rest of the world as a way to keep growth afloat. (…)
On the previously agreed trade deal with China, Bessent said, “China has not made good on their Ag purchases,” and said he will push Beijing to resume those purchases and maybe even pursue a “make-up provision.”
New home prices in 70 cities, excluding state-subsidized housing, dropped 0.08% from November, the smallest decline in a year and a half, National Bureau of Statistics figures showed Friday. Existing home values slid 0.31%, easing from a 0.35% drop a month earlier.
The figures suggest property values are beginning to steady as policymakers step up efforts to end the housing slump that has weighed on Asia’s largest economy for more than three years. The downturn has wiped out billions of dollars in household wealth and added to deflationary pressures. (…)
Improvements were seen on a year-on-year basis too, with new-home prices falling 5.73% versus 6.07% a month earlier. Used-home values dropped 8.11% compared with 8.54% in November. (…)
FYI: Goldman Sachs estimates that floor space sold declined 0.6% YoY in December vs +2.5% in November.
China Moves to Stall Apple, BYD Production Shifts Across Asia
China is making it harder for employees and specialized equipment needed for high-tech manufacturing in India and Southeast Asia to leave its borders, according to people familiar with the matter, a possible attempt to prevent companies from shifting production in anticipation of higher tariffs under US President-elect Donald Trump.
Officials in Beijing have verbally encouraged regulatory agencies and local governments to curb technology transfers and equipment exports to the regions, one of the people said, asking not to be identified because the discussions are private. The aim is to shore up China’s own production, reduce any potential job cuts, and prevent foreign investors from fleeing the country if the US imposes new trade barriers, the person said.
Apple Inc.’s main assembly partner Foxconn Technology Group hasn’t been able to dispatch its Chinese staff to India and its factories in the country haven’t been able to receive additional specialized machinery from China, some of the people said. There’s been no immediate impact on production though, they said. (…)
Beijing doesn’t want Foxconn to further diversify its production away to other regions, one of the people said. Foxconn employs hundreds of thousands of workers at its Chinese factories, and its large operations are key to local electronics supply chain as well as employment. (…)
The restrictions on tech equipment have also had an impact on manufacturing of electric vehicles and solar panels in India, the people said, with the Indian unit of Chinese EV maker BYD Co. and Waaree Energies Ltd., India’s largest solar-panel maker, affected. (…)
Bloomberg News had previously reported that Beijing wanted to limit the transfer of advanced technology for EV manufacturing, and officials had told carmakers at a meeting in July last year that they shouldn’t make any auto-related investments in India.
India’s government was aware of the Chinese curbs on tech equipment but believed they weren’t meant to single out India, government officials said, asking not to be identified because the discussions are private.
The two countries recently eased a four-year border stalemate and have taken gradual steps toward normalizing relations. However, India still maintains strict curbs on Chinese investment into the country and limits visas for Chinese nationals, including engineers and technicians employed in high-tech manufacturing.
China has also prevented equipment makers from shipping their machinery to Southeast Asian nations, according to people familiar with the matter. Vietnam, Malaysia and Thailand were among the countries affected, they said. (…)
Europe’s carmakers risk hefty bill for carbon credits from Chinese rivals Groups failing to meet EU climate targets face a choice of paying fines, discounting EVs or buying credits
The FT reports that “Under EU rules requiring carmakers to cut emissions, manufacturers lagging behind in the electric transition face the choice of paying billions of euros in fines, boosting EV sales by slashing prices or buying credits from less polluting competitors. (…) Analysts estimate that some European groups may be forced to buy hundreds of millions of euros worth of carbon credits from Chinese rivals such as BYD, which has one of the largest pools of credits to sell thanks to high EV sales in the EU.”
The rules allow manufacturers a pooling option to “average out the greenhouse gas emissions of their fleets with other companies that sell in the bloc”.
Tesla pools its more than $2bn of credits with Stellantis, Ford and Toyota, Polestar and Volvo, owned by Geely, pool with Mercedes-Benz. Others such as VW and Renault are looking for partners with BYD the belle of the ball.
AI CORNER
Meta AI creates speech-to-speech translator that works in dozens of languages
Researchers at tech giant Meta have created a machine-learning system that almost instantaneously translates speech in 101 languages into words spoken by a voice synthesizer in any of 36 target languages.
The Massively Multilingual and Multimodal Machine Translation (SEAMLESSM4T) system can also translate speech to text, text to speech and text to text.
[Meta] is making SEAMLESSM4T available open-source for other researchers who want to build on it, following the success of releasing its LLaMA large language model to developers worldwide.
The model is described in a paper published today in Nature.
China’s Xi Offers Olive Branch to Trump by Sending Top Deputy to Inauguration Han Zheng is set to be highest-level Chinese official ever to attend a presidential swearing-in
(…) “We are willing to work with the new U.S. government to strengthen dialogue and communication,” to properly manage differences and expand cooperation, the Chinese Foreign Ministry spokesperson said, according to state media.
Beijing hopes to “find the right way for China and the U.S. to get along in the new period,” the spokesperson said. (…)
It would have been unusual for the leader of any nation to personally attend a U.S. presidential inauguration. Xi would have faced political risks by attending himself, particularly after Trump said he would impose additional tariffs on China from the first day of his second term as president.
In light of such concerns, some experts on Chinese diplomacy said that sending Han was the most positive response that Xi could realistically have made to Trump’s invitation. (…)
In his congratulatory message to Trump after his election victory in November, Xi said, “History tells us that both countries stand to gain from cooperation and lose from confrontation.” (…)
Meanwhile
For a mild-mannered guy, Mike Pence packs a punch. On Thursday, speaking in Hong Kong at the UBS Wealth Insights summit, the former Vice President called for the release of the newspaperman Jimmy Lai, whose trial on national-security charges was also taking place in another part of the city.
“There is probably no more compelling gesture in the short term to send a message of good will to the people of the United States, or the free world, than if China were to take steps to free Jimmy Lai,” Mr. Pence said. It says something about today’s Hong Kong that stating this is controversial. (…)
Marco Rubio, nominated to be the next Secretary of State, said in his confirmation hearings that Beijing has broken all the guarantees it made to Hong Kong. The big question for the city is how it can claim to be a global financial and trade center when it holds political prisoners and can confiscate a newspaper from its owner without so much as a court order. (…)
Donald Trump will be sworn in Monday as U.S. President, he’s pledged to free Jimmy Lai, and a bipartisan U.S. consensus is forming against China and Hong Kong. Mr. Pence’s remarks are a warning about what’s to come if they don’t fix the mess they created.
