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December Retail Sales Surprise On The Downside, Might Point To Recession

Americans cut down on their shopping in December, with U.S. retail sales dropping 1.2% compared with November, according to the Census Bureau, which adjusts for seasonal variation but not prices. That is the fastest monthly drop the U.S. has seen since 2009.

Even online sales, which have gained consistently for more than a decade now, dropped 3.9% month over month.


But year over year, the numbers still look good. Retails sales were up 2.3% from December 2017 to December 2018. 

The report seemed to raise more questions than answers. Is the retail sector even weaker than believed? Does the report point to a recession on the horizon? Did the government shutdown affect the quality of December's data?

The monthly drop was widespread across the retail sector. A few retail categories enjoyed higher sales for the month, such as a 1% rise in auto sales and a 0.3% gain in building material and supply store sales.

Most retailers took it on the chin. In some cases, the monthly number —which can be interpreted as noise when it doesn't reflect the longer-term trend — probably reflected a longer-term malaise.

For instance, sporting goods, hobby, music and book stores suffered a 4.9% decrease in sales for the month, a heavy hit. That is unlikely to be a fluke, since sales for that sector were off 13% since a year ago. Those kinds of stores are particularly susceptible to online competition, with some exceptions.

Department stores were another big loser, down 3.3% for the month and 2.8% for the year.

Most retail categories didn't do so badly when year-over-year sales are taken into account. Clothing stores, for example, were off 0.7% for the month in December but scored a healthy 4.7% gain for the year.

Online sales rose 3.7% year over year. Unless monthly sales are down several more times in a row, December would arguably be an anomaly.


Do the December numbers signal a recession? Economists, as usual, are not in agreement. Michael Pearce, an economist at Capital Economics, said the report suggests the economy entered 2019 with much less momentum than anticipated, the Wall Street Journal reports.

By contrast, High Frequency Economics Chief Economist Jim O’Sullivan told the WSJ a sudden collapse in the economy is unlikely, considering other economic evidence.

The National Retail Federation sounded an optimistic note that the drop was a blip.

"All signs during the holidays seemed to show that consumers remained confident about the economy,” NRF President and CEO Matthew Shay said in a statement. “However, it appears that worries over the trade war and turmoil in the stock markets impacted consumer behavior more than we expected."

Shay also cited the recent partial federal government shutdown as a potential factor in short-term consumer behavior.

"It’s very disappointing that clearly avoidable actions by the government influenced consumer confidence and unnecessarily depressed December retail sales," Shay said.

The Census Bureau asserted the shutdown didn't affect the quality of its data.

"Processing and data quality were monitored throughout and response rates were at or above normal levels for this release," the agency said in its monthly report on retail sales.

Not everyone is persuaded by the bureau's assurances.

"It leaves us all scratching our heads. It's suspect, highly suspect," Grant Thornton Chief Economist Diane Swonk told CNBC, pointing out that the data is subject to revision.