Global economic data continued to signal a slowdown in consumer demand.

Retail sales declined 1.1% m/m in December, following a downwardly revised -1% in the prior month. This pushed the value of nominal sales back to where it was in May 2022 and down 2.1% from its recent high in October. Real retail sales fell 1.1% m/m, bringing the value down 3.8% from its March 2021 high. The nominal y/y percent change was essentially flat versus the November pace and negative for the second month in a row on an inflation-adjusted basis. The y/y comparison for retail sales remains difficult in January and February which is not a good setup for the first quarter of 2023.

Source: Macrobond.

Looking at trade data in the U.S. and abroad can provide additional context to the domestic and global demand setup. Imports into the U.S. decelerated to 2.4% y/y from 13.9% in the month before and well below its peak growth rate of 38.0% in May 2021. Exports from the U.S. decelerated to 10.4% y/y from 13.8% and 22.2% in the prior two months.

Source: Macrobond.

China exports to the U.S. declined 19.5% y/y in December, marking its fifth consecutive month of negative prints. In U.S. Dollar terms, the absolute level is now in-line with November 2018 and down 21% from its all-time high in September 2021. Similarly, China exports to Europe declined 15.5% y/y, its third consecutive month of y/y declines. Total exports out of China dropped 9.9% y/y.

Source: Macrobond.

There is a similar dynamic from Japan with exports to the U.S. down 1.2% y/y. Exports from Japan to China decelerated at their fastest pace since February 2015 at -20.2%. Total exports out of Japan are down 4.9% y/y and in-line with October 2018.

Source: Macrobond.

Additionally, industrial production in the U.S. declined for the third consecutive month, falling to 103 from 104. Industrial production in China and Japan also remains historically weak. The China National Bureau of Statistics measure of industrial production dropped to 101 from 102, its third consecutive m/m deceleration on a rate of change basis. Japan industrial production ticked up to 96 from 95, but has declined in two of the last three months.

Source: Macrobond.

Given the slowdown in retail sales to close out the year and difficult comparison set ahead, there is a higher probability of consumer spending decelerating y/y in 1Q23 versus 1Q22. The trade and productivity data are likely confirming that view as expectations for global demand come down.

 

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