Coverage: Retail sales drop in December

Stocks took a dive on Wednesday in part after December’s retail sales numbers dropped, something watchers were not expecting. But how consumers’ are doing continues to remain slightly puzzling.

The New York Times had this analysis by Hiroko Tabuchi:

Retail sales unexpectedly dropped 0.9 percent in December from the previous month, according to figures released Wednesday by the Commerce Department, suggesting that falling gas prices and a brighter job market have yet to lift consumer spending.

The decrease, far worse than the median 0.1 percent decline that economists had predicted, followed a smaller-than-estimated gain of 0.4 percent for November. The weak spending numbers raise concerns over the 2014 holiday sales season, and could prompt economists to be more pessimistic in their outlook for economic growth this year.

But the overall figure reflects a murky picture, because it factors in the slide in gasoline prices. Once gas and automobile sales are excluded, the 0.3 percent fall in the remaining retail sales suggests that consumers were saving the extra dollars instead of spending them. Economists had expected sales excluding gas and autos to jump 0.5 percent.

Weighing on consumer sentiment have been sluggish wages, which have failed to pick up despite falling unemployment. Sales in electronics stores, and at clothing and department stores, fell in December’s broad retreat.

The Reuters story by Lucia Mutikani struck a more optimistic note about the decline, saying it could be a one-time drop:

U.S. retail sales recorded their largest decline in 11 months in December as demand fell almost across the board, tempering expectations for a sharp acceleration in consumer spending in the fourth quarter.

Economists, however, cautioned against reading too much into the surprise weakness, noting that holiday spending made it difficult to smooth December data for seasonal fluctuations.

“Faulty seasonal adjustments from shifts in holiday spending patterns are probably more to blame for the December decline,” said Steve Blitz, chief economist at ITG in New York. “Looking at the last three months, spending is not collapsing.”

But the Bloomberg coverage by Victoria Stilwell led with a quote claiming the opposite of the Reuters story:

While disappointing, the drop followed large-enough gains at the start of the quarter that signaled consumer spending accelerated from the previous three months as the job market strengthened and gasoline prices plunged. Continued improvement in hiring that sparks more wage growth will be needed to ensure customers at retailers such as Family Dollar Stores Inc. also thrive.

“Maybe the optimism a month ago got a little too heated,” said Guy Berger, U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who is among the best forecasters of retail sales over the past two years, according to data compiled by Bloomberg. “It’s a weak number but it follows some really strong ones and I don’t think it changes my general feeling on how the economy and consumers are doing.”

Treasury yields and stocks fell as a deepening commodities rout and the drop in sales spurred concern global growth is slowing. The Standard & Poor’s 500 Index retreated 0.6 percent to 2,011.27 at the close in New York. The 30-year Treasury bond yielded 2.47 percent after declining earlier to a record-low 2.39 percent.

Electronics merchants, clothing outlets, department stores and auto dealers were among those posting sales declines in December, today’s report showed. Cheaper fuel helped push receipts at gasoline stations down by the most in six years. The Commerce Department’s figures aren’t adjusted for changes in prices.

The Associated Press story (via Crain’s) pointed out that it isn’t all doom and gloom since it typically takes economic numbers a couple of months to catch up with consumers:

And the financial benefit of falling gas prices can take time to register with consumers. It may take a month or two of persistent savings before consumers begin to spend the windfall.

With hiring still healthy, consumer confidence rising and households reducing their debt loads, most economists expect Americans to spend at a healthy pace this year, supporting solid economic growth.

“This isn’t the start of a collapse in activity … as that doesn’t fit with the strength of employment growth and consumer confidence,” Paul Diggle, an economist at Capital Economics, said in a note to clients. “As such, retail sales will strengthen again before too long.”

And total holiday sales, which include both November and December but exclude gas, autos, and restaurant spending, rose 4 percent from 12 months earlier. That was the largest gain since 2011, according to the National Retail Federation and some independent economists.

Still, stock investors were disappointed by Wednesday’s report. The Dow Jones industrial average fell 266 points in mid-day trading.

After such strong numbers in November, the drop, particularly given the recent price of oil and other consumer goods, surprised some investors. It is surprising, but also a good idea to keep in mind that most economic data is just a snapshot of a period of time and has little commentary about the overall health of the economy.