Advance holiday shopping boosts US retail sales; Omicron drag scheduled for January

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People carrying shopping bags walk inside the King of Prussia mall, as shoppers turn up early for Black Friday sales, in King of Prussia, Pennsylvania, U.S. November 26, 2021. REUTERS /Rachel Wisniewski/File Photo

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  • Retail sales fall 1.9% in December
  • Core Retail Sales Fall 3.1%; November revised down
  • Manufacturing production fell by 0.3%

WASHINGTON, Jan 14 (Reuters) – U.S. retail sales fell the most in 10 months in December, likely due to Americans starting their holiday shopping in October to avoid empty store shelves.

Economists have warned against reading the unexpected drop in retail sales last month flagged by the Commerce Department on Friday as a sign of weakness. Consumer spending remains supported by huge savings, rising wages as companies scramble for scarce workers as well as soaring household wealth.

Still, the report and news of an unexpected drop in factory output in December suggests the economy lost momentum at the end of 2021. That trend likely continued into January amid spiraling infections to COVID-19, driven by the Omicron variant, which has disrupted businesses. and schooling.

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“It’s clear that most shoppers took the advice to get their holiday shopping done early and that, combined with a massive increase in spending on goods earlier in the year, conspired to drive sales down sharply at the end of the year. of the year,” said Tim Quinlan, a senior economist at Wells Fargo in Charlotte, North Carolina.

Retail sales fell 1.9% last month, the biggest drop since February 2021, after rising 0.2% in November. Economists polled by Reuters had forecast retail sales unchanged. Estimates ranged from a decline as low as 2.0% to an increase as high as 0.8%.

Retail sales, which are mostly goods, rose 16.9% year-on-year in December. Unadjusted sales rose 10.0% last month.

Sales could weaken further in January as Omicron limits consumer traffic to places like restaurants and bars, although some economists expect spending on goods to rise as people stay home. House. Retail sales are 19.2% higher than their pre-pandemic level. Holiday sales jumped 14.1% to a record $886.7 billion in 2021, according to the National Retail Federation.

Bottlenecks in supply chains caused by the pandemic have resulted in shortages of goods. The surge in sales from December also likely had an impact on the so-called seasonal factor, the model used by the government to remove seasonal fluctuations from the data.

“So we don’t think December was a story of weaker demand or more cautious consumer behavior,” said Conrad DeQuadros, senior economic adviser at Brean Capital in New York.

The online sales category was the hardest hit by the seasonal factor slowdown, plunging 8.7%. Revenues at car dealerships fell 0.4%. Automobiles remain scarce due to a global shortage of semiconductors.

Motor vehicles could remain in short supply for some time. A separate report from the Federal Reserve on Friday showed that a 1.3% drop in output at motor vehicle plants helped push manufacturing output down 0.3% in December.

Factory production rose 0.6% in November. Economists expected output to rise 0.5%. Read more

The Fed is expected to start raising interest rates again in March, amid high inflation.

“We don’t believe today’s reading will have a material impact on the Fed’s decision to raise rates, likely in March, which will depend more heavily on inflation than activity data,” he said. Andrew Hollenhorst, chief economist at Citigroup in New York. “The seasonal adjustment factor turns very positive in January, suggesting that online sales and overall retail sales will rebound strongly.”

Wall Street stocks were down. The dollar appreciated against a basket of currencies. US Treasury prices fell.

Retail sales

GREAT WEAKNESS

Sales at electronics and appliance stores fell 2.9%. Gasoline station receipts fell 0.7% as gasoline prices retreated from the higher levels seen in previous months. Sales at food and beverage stores fell 0.5%. Clothing store sales fell 3.1%. There were also declines in sales at sporting goods, hobby, musical instrument and book stores.

Sales at furniture stores fell 5.5%, while receipts at electronics and appliance stores fell 2.9%. But sales by suppliers of building materials and garden equipment rose 0.9%.

Restaurant and bar receipts fell 0.8%. Restaurants and bars is the only service category in the retail sales report. These sales increased by 41.3% compared to last December.

Excluding automobiles, gasoline, building materials and food services, retail sales fell 3.1%. It was also the biggest drop since last February. November data has been revised down to show these so-called core retail sales fell 0.5% instead of falling 0.1% as previously reported.

Core retail sales correspond most closely to the consumer spending component of gross domestic product. Economists lowered their forecast for consumer spending in the fourth quarter after the data.

December’s weakness puts consumer spending on a weaker growth path heading into the first quarter. Inflation concerns could also limit spending. Consumer confidence fell to the second lowest level in a decade in early January, according to a University of Michigan survey. Read more

GDP growth estimates for the fourth quarter remained bullish, thanks to increased inventory accumulation. A fourth Commerce Department report showed business inventories rose 1.3% in November. Read more

Business inventories

Goldman Sachs cut its growth estimate by half a percentage point to an annualized rate of 6.5%. The economy grew at a 2.3% pace in the third quarter. Last year’s growth is expected to have been the strongest since 1984.

“Consumer spending will remain the cornerstone of economic growth this year, but the near-term trajectory will be unstable amid the surge in Omicron business and high inflation,” said Lydia Boussour, chief U.S. economist at Oxford Economics in New York. “Overall, the combination of strong labor income growth, high excess savings and healthy balance sheets will support above-trend consumption growth this year of 4%.”

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Reporting by Lucia Mutikani; Editing by Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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