Retail Sales Fell in December. Why Some Economists Say the Decline Will Be Short-Lived.

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US retail sales fell 1.9% month over month in December, showing a slowdown in US spending during the holiday season as the Omicron version spreads and how rapidly rising prices have changed the way people spend.

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According to FactSet, economists forecast a 0.1% increase in sales. According to the Census Bureau, retail sales excluding auto and gas grew by 0.6% in November, compared to a growth of 1.5% in October. Retail sales grew 16.9% year-on-year in 2021.

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Online sales dropped a whopping 8.7%. Other categories that were down last month in December include electronics stores, which declined 2.9%, auto dealers declined 0.7%. Furniture and home stores declined 5.5%, and restaurant and bar sales declined 0.8%.

While the December report showed an unexpected drop in retail sales catapulting November spending data, the slowdown is expected to be short-lived. Put more simply: “Don’t panic,” as economists at Wells Fargo wrote Friday.

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Economists say consumers have long been expected to ramp up their holiday purchases to get ahead of any supply chain backlogs. And while the spike in coronavirus cases due to the Omicron surge is likely to have some effect, most economists, including policymakers at the Federal Reserve, agree that consumers are increasingly learning to live with the virus, and less on outbreak behavior. making an impact. ,

“Those who are looking for confirmation of an Omicron-related slowdown will seize today’s drop in retail sales as evidence, but this is a drop we have been anticipating since our first. holiday sales forecast in September,” Tim Quinlan, a senior economist at Wells Fargo, wrote Friday.

The University of Michigan’s consumer sentiment for the US fell to 68.8 in January of 2022, the second lowest level in a decade and well below the FactSet forecast of 70.0. The final reading for December was 70.6. The measurements are designed to capture the mood of US consumers and indicate information about near-term consumer spending plans. In early January, three-quarters of respondents ranked inflation as a more serious problem facing the US than unemployment

In a November Bankrate survey of 2,372 American adults, more than half of respondents said they had noticed higher prices related to products in October.

Bankrate analyst Ted Rossman wrote, “While there isn’t much to like about the December report, October and November results were so strong that fourth-quarter retail sales were still up an impressive 17.1% year-over-year. ” baron’s Friday morning. “The big question is where do we go from here. Especially when inflation is taking a toll and demand is waning.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said although inflation is weighing on consumer sentiment, as surveys show, rising prices in December are unlikely to put any pressure on real income. He argued that “it is not possible to make such a decision on the basis of one month’s report”.

In addition, Shepherdson said, consumers of all income levels are sitting on an abundance of additional savings, which should drive sales forward. “Lack of cash is not an issue, so we expect a strong rebound in sales after the Omicron wave subsides,” he wrote in a research note on Friday. “January is probably a write-off, but February and March will be much better.”

“Yes, it’s worse than expected, but put that in perspective and put it at the base of the pile,” said Columbia Threadneedle analyst Mari Shor. Why Baron? ,The results reflect supply chain challenges related to Omicron and I truly believe these are temporary.”

She says she thinks retailers will be able to bounce back much faster than at the start of the pandemic, when supply-chain issues first hit.

Write to Logan Moore at [email protected] and Megan Cassella at [email protected]

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