Retail sales collapsed in December as, following a stronger revised 1.9 percent monthly rise in November, volumes dropped fully 5.3 percent. This was their worst performance since July 2021 and well wide of the market consensus. The fall again extended the switchback path seen since the middle of 2022 and left purchases at their lowest level since February 2021. Unadjusted annual growth was minus 6.6 percent, down from minus 4.9 percent.

December saw broad-based declines across the main sectors, indicating a particularly poor Xmas period for the retail sector in general. Fourth quarter sales were a sizeable 2.7 percent below their level in the previous period and so do much to explain the unexpected weakness of fourth quarter GDP (minus 0.2 percent).

Looking ahead, consumer confidence at least seems to have stabilised in recent months but is still historically very low, as are buying intentions. Consequently, the chances of any significant pick-up in spending near-term look slim. More generally, today's update trims the German ECDI to minus 4 and the ECDI-P to minus 13, both measures now indicating a limited degree of overall economic underperformance that can only increase the chances of recession this quarter.

Retail sales are expected to rise 0.3 percent on the month in December after rebounding 1.1 percent in November.

Retail sales measure the total receipts at stores that sell durable and nondurable goods. The data are compiled from about 27,000 retail businesses and are reported in both nominal and volume terms. Autos are excluded. A very limited breakdown of subsector performance is available in the initial report which is itself subject to sometimes sizeable revision but much greater detail is provided in the following month's release.

With consumer spending a large part of the economy, market players continually monitor spending patterns. Retail sales are a measure of consumer well-being. The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report. However, by excluding the services sector, changes in retail sales data can differ significantly from those in total household spending.