Consumers in November

December 19, 2005 – Reflecting the downturn in energy prices, the U.S. CPI for consumer goods plunged by 2.2% in November, extending October’s 0.5% decline. With this drop in the November price level, the 0.3% decline in November non-auto retail sales translates into a stunning real gain of 1.9% – the strongest monthly increase since October 2001 (Chart 1).

Chart 1. Percent change in real non-auto retail sales. Monthly and three-month moving average. January 2000 through November 2005.

Reinforcing this extra strong real growth in sales of non-auto consumer goods, car and light truck sales rose by 6.8% to a 15.7M unit annual rate in November (Chart 2). This was the first monthly rise in light vehicle sales since their huge incentive-driven spike to 20.7M in July.

Chart 2. Light vehicle sales. January 2000 through November 2005.

Assuming a gain of about 0.2% in consumers’ less volatile real services purchases (in line with their recent trend), these data suggest that real consumption might have shot up by 1.1% in November, after edging up by 0.1% (essentially flat) in October (Chart 3).

Chart 3. Percent change in real consumption. Monthly and three-month moving average. January 2000 through October 2005 and November 2005 forecast.

This would leave Q4 real consumption growth tracking at a 1.7% annual rate, as of the second month of the quarter. That’s not even half as much growth as Q3’s 4.2% gain (Chart 4).

Chart 4. Percent change in real consumption. Q1 2000 to date.

To date, however, this Q4 slowing has been narrowly based in the auto sector. Excluding autos, consumption growth seems to have accelerated to about a 5% annual rate in the first two months of Q4, compared to an increase of about 3.5% for all of Q3.

Suzanne Rizzo