Consumers Rein in Spending…Again…in December

January 24, 2023

The advanced monthly retail sales estimates for December recently released by the U.S. Census Bureau showed another month of pullback in monthly consumer spending.

Perc Pineda, PhD
Chief Economist
Plastics Industry Association

The advanced monthly retail sales estimates for December recently released by the U.S. Census Bureau showed another month of pullback in monthly consumer spending. Total sales for retail and food services decreased by 1.1% in December after a 1.0% decrease in November. Motor vehicles and parts, as well as electronics and appliances sales—both plastics-intensive sectors—had 1.2% and 1.1% sales decreases, respectively, in December. 2022 closed with retail sales at Department Stores decreasing 6.6%—the most significant among all retail stores sectors.

While sales declined in most retail categories, however, there was a 0.3% uptick in building materials and garden and equipment supplies, as well as a 0.1% uptick in sporting goods, hobby, musical instruments, and bookstores retail sales. Food and beverage retail sales flattened in December, but grocery sales increased, albeit marginally, by 0.1%.

Year-on-year retail sales increased in most categories 

Retail and food services total sales rose by 6.0% Y/Y in December.  With the exception of electronics and appliances stores, and department stores, which saw 5.6% and 0.6% Y/Y decreases, respectively, retail sales in all other categories increased. Motor vehicles and parts dealers’ sales rose 1.8% Y/Y and building materials and garden supplies sales were up 2.3% Y/Y in December. Food and beverage stores retail sales rose 6.9% Y/Y in December, with grocery store retail sales up 7.3% Y/Y.

Higher borrowing costs have slowed spending on durable goods

Appliances, and to some extent electronics, are complementary products to the housing demand. As higher mortgage rates began weighing on home sales last year, demand for appliances also slowed. This explains the year-on-year decrease in electronics and appliances retail sales in December. New single-family home sales fell 15.3% Y/Y in November 2022. Housing starts in December fell by 21.8% Y/Y in December. A weaker outlook in housing will continue to weigh on consumer spending when it comes to appliances.

Moderate economic growth will have uneven impacts on the plastics industry

Moderate economic growth rates and higher interest rates are expected to continue to have an uneven impact on the plastics industry by way of changes in consumer spending on plastics’ end markets. Consumer non-discretionary spending—such as nondurable goods, which are not fully sensitive to rising borrowing costs—can be expected to remain stable. By extension, plastics manufacturers that serve nondurable goods end markets and the packaging industry can expect stable demand. However, lower demand for durable goods—particularly those that are normally financed—will cause lower demand for plastics in durable goods-producing end markets. This does not mean that as the economy continues to adjust towards long-term growth it will be strictly headwinds for plastics’ durable goods end markets. The plastics industry will continue to service demand in nondurable goods end markets, but demand will be lower than in recent years. If inflation continues to ease, rising borrowing costs may be nearing an inflection point. More important, demand growth in nondurable goods end markets could be at sustainable and serviceable levels—in contrast to 2020 and 2021 when insufficient inventory capped business revenue growth despite strong demand—as supply chain conditions continue to improve.