United States: Retail sales log sharpest monthly contraction since last recession in December
February 14, 2019
Nominal retail sales fell 1.2% on a seasonally-adjusted month-on-month basis in December, sharply contrasting the revised 0.1% growth in November (previously reported: +0.2% month-on-month), and contrasting analyst expectations of a 0.1% rise by a wide margin. The contraction was furthermore the sharpest recorded since September 2009, during the last recession. Moreover, retail sales excluding automobiles, gasoline, building materials and food services—also known as “core” retail sales as they most closely reflect private consumption in the GDP releases—tanked an even steeper 1.7% month-on-month (November: +0.9% month-on-month). This represented the largest fall in nearly two decades, indicating a significant weakening of consumer spending at the end of the fourth quarter. Importantly, the December report was delayed by a month due to the government shutdown in December and January.
Looking at the details, consumer spending declined in December across most categories of stores, with the notable exception of automobile dealerships—which is unusual considering car purchases are not usually part of traditional holiday spending. Even non-store retailers, a category which notably includes e-commerce businesses, and had usually shown solid growth in previous months, saw a sharp decline in sales compared to November.
In annual terms, growth in retail sales slowed from a revised 4.1% in November (previously reported: +4.2% year-on-year) to just 2.3% in December, the weakest performance in over two years. However, the print was somewhat weighed down by a high base effect, due to robust holiday season sales last year. Lastly, annual average retail sales growth fell to 4.9% in December, from 5.2% in November.
According to analysts at Nomura, “a variety of factors may have affected consumer spending in December. Given that the shutdown started on 22 December and stretched into January, it is possible there were some small negative effect on personal spending from furloughed workers and business disruptions. Also, sharp declines in equity prices during December may have weighed on consumer spending”. Looking ahead, they further noted that “in January, declines in consumer confidence and the prolonged partial government shutdown during the month may have added additional headwinds to consumer spending. In addition, we see some downside risk to Q1 consumer spending as a result of complications arising from tax filing season this year”.
Author: Joffrey Simonet, Economist