Consumer spending rises in December to end solid holiday season, CNBC/NRF Retail Monitor shows

Retailers chalked up solid gains in the final month to wrap up the holiday season, according to the CNBC/NRF Retail Monitor for December.

However, the data also shows the true state of consumer spending is now clouded by a new factor: deflation.

The Retail Monitor, which excludes autos and gas, rose 0.4% in December, down from a gain of 0.8% in November, when the holiday shopping season traditionally kicks off. It’s just below the long-run average of 0.6%.

The core retail gauge, which also takes out restaurants, climbed a more modest 0.2% after gaining 0.7% in the prior month. For the year, the Retail Monitor increased by 3.1% and the core was up 2.4%.

Some give back from the strong November was inevitable, and economists expect the economy to cool from the outsized growth in the third quarter. One question is whether December marks the beginning of a long-predicted normalization in consumer spending.

Spending was clearly hampered by the slowdown in the housing industry. Three of the biggest negative categories were housing related:

• Electronics and appliances (-3.2%)
• Building and garden supplies (-1.5%)
• Furniture and home furnishings (-0.9%).

Furniture sales have been negative in four of the past five months.

Traditional holiday-related retail categories did better, including a 0.9% gain in general merchandise stores and a 2.6% increase in non-store retailers, which incorporates internet sales. Restaurants and bars posted a 1.5% gain, it’s best showing since July.

Deflation is another factor. Goods prices, less food and energy, have fallen for six straight months. They are down 3.7% at an annualized rate from June through November.

The Retail Monitor found sales of clothing and accessories down 0.4% but the November CPI showed prices fell a much larger 1.3% in November. The December CPI, set to be released Thursday, should show more clearly how prices affected sales.

Wall Street is monitoring how retailers are managing profit margins amid deflation and whether they can be as profitable with falling prices as they where with rising prices. At issue is whether retailers can control costs and if input prices are falling faster or slower than selling prices.

Wall Street has been bullish on retail, with the SPDR S&P Retail ETF (XRT) up 21% since late October despite some giveback beginning in the trading days after Christmas. Retail earnings will be released beginning in late February, but some companies — such as Lululemon, Crocs and Five Below — have guided higher on better holiday sales.

The new Retail Monitor is a joint product of CNBC and the National Retail Federation based on data from Affinity, a leading consumer purchase insights company. The data is sourced from more than 9 billion annual credit and debit card transactions collected and anonymized by Affinity and accounting for more than $500 billion in sales. The cards are issued by more than 1,400 financial institutions.