Consumers curb spending in December hindering retailer earnings

U.S. consumers held on to their extra money in December, reining in spending on everything from manicures to gourmet coffee as oil prices fell and signs of a global economic slowdown created a cautious sentiment.

The U.S. Department of Commerce said Monday (Feb. 1) that personal spending in December was flat against the prior month. Consumption was up only 0.5% in November and flat in October. Economists on Wall Street had forecast a 0.1% rise in spending last month as lower gasoline prices continues to put more disposable income in the average household budget. During 2015, consumer spending rose 3.4% overall, which was lower than the 4.2% increased spending in 2014, according to the Commerce Department.

Economists say the majority of spending last year went toward big-ticket items like cars and household items as well as travel and restaurant services.

The National Retail Confederation forecast 2015 retail sales increasing 2.2%, but December sales overall were down 2%, which is a wash for the rest of the year. The Commerce Department said consumers socked away more of their income in December bringing the personal savings rate to 5.5%, ticking up slightly from November and building up gradually over the past two years.

The Commerce Department also reported personal income rose 4.5% during 2015, up slightly from the 4.4% increase in 2014. During December, personal income increased 0.3% or by $42.5 billion in aggregate, according to the federal agency. Core inflation remained below the Federal Reserve’s 2% annual target at 1.4% in December. Core inflation does not include food or energy costs.

Economists say retailers overall will likely report mixed holiday results in the coming month as their fiscal year winds down. Wal-Mart Stores will report its fiscal year earnings on Feb. 18 prior to the market opening. The retailer is expected to earn $1.43 for the fourth quarter ending Jan. 31. Earnings are expected to be lower than the $1.61 reported a year ago given economic slowdown across the globe. The retailer’s overall fourth quarter revenue of $130.73 billion, off slightly from the $131.56 billion reported a year ago.

Dillard’s and Macy’s have already said the recent holiday season was lackluster at best. Little Rock-based Dillard’s will report earnings later this month that are expected to be $2.59 cents share, down more 18% from the same quarter last year. Dillard’s fourth quarter revenue is expected to be $2.11 billion, down from $2.18 billion the year-ago period.