The retail monitor from CNBC and NRF reveals that consumer spending increased in December, marking the end of a strong holiday season.

• In December, the Retail Monitor, excluding autos and gas, experienced a 0.4% increase, compared to the 0.8% rise in November.
• The retail gauge, excluding restaurants, increased by 0.2% after rising by 0.7% in the previous month.
• The core and year both experienced a 2.4% and 3.1% increase, respectively.

The CNBC/NRF Retail Monitor for December reported that retailers experienced substantial profits in the last month of the holiday season.

The new factor of deflation is clouding the true state of consumer spending data.

In December, the Retail Monitor, excluding autos and gas, experienced a 0.4% increase, lower than the 0.8% gain in November, traditionally the start of the holiday shopping season. This is close to the long-term average of 0.6%.

The Retail Monitor, which excludes restaurants, rose by 0.2% in the latest month, following a 0.7% increase in the previous month. For the year, the core retail gauge increased by 3.1%, while the overall retail sector grew by 2.4%.

Whether December signals the start of the predicted normalization in consumer spending is one question. Despite the strong November, economists anticipate the economy will slow down due to the outsized growth in the third quarter.

The slowdown in the housing industry negatively impacted spending, with three of the largest negative categories being housing-related.

• Electronics and appliances (-3.2%)
• Building and garden supplies (-1.5%)
• Furniture and home furnishings (-0.9%).

Furniture sales have been negative in four of the past five months.

General merchandise stores and nonstore retailers, including internet sales, experienced a 0.9% and 2.6% increase, respectively. Restaurants and bars had the best showing since July with a 1.5% rise.

Deflation

Another factor contributing to the decline in goods prices is deflation. Over the past six months, food and energy prices have fallen, resulting in a 3.7% decrease in annualized rate from June to November.

The Retail Monitor reported a 0.4% decline in sales of clothing and accessories, while the November CPI indicated a larger 1.3% drop in prices. The December CPI, to be released on Thursday, will provide a clearer picture of how prices impacted sales.

Retailers' ability to manage profit margins amid deflation is being closely watched by Wall Street, with the focus on whether they can maintain profitability with falling prices as they did with rising prices. The challenge lies in controlling costs and determining whether input prices are falling faster or slower than selling prices.

Despite some giveback starting in the trading days after Christmas, Wall Street has remained bullish on retail, with the sector up 21% since late October. Retail earnings will be released in late February, and some companies, such as L Brands, Ulta Beauty, and Dick's Sporting Goods, have guided higher on better holiday sales.

Good, not great Christmas

Despite the Retail Monitor and core retail gaining 3.7% and 3.3% respectively in November and December, the holiday season was not as great as expected. However, October and January had stronger gains than either of the critical months, indicating that the full holiday shopping season may be longer than usual.

The Retail Monitor, a collaboration between CNBC and the National Retail Federation, utilizes data from Affinity, a prominent consumer insights company, to provide insights into consumer spending patterns. The data is derived from over 9 billion annual credit and debit card transactions collected and anonymized by Affinity, representing more than $500 billion in sales. The cards are issued by over 1,400 financial institutions.

The CNBC/NRF Retail Monitor is based on actual consumer purchases, while the Census Bureau's retail sales report relies on survey data. The government data is subject to revision as more survey data becomes available, but the CNBC/NRF Retail Monitor is not revised, as it is calculated from actual transactions during the month and is seasonally adjusted using the same program as the Census.