Retail Sales Declined in December at Fastest Pace Since 2009

Release Date:  Thursday, February 14, 2019

Measure of purchases at stores, restaurants and online declined a seasonally adjusted 1.2% from a month earlier

The Wall Street Journal, By Harriet Torry, Updated Feb. 14, 2019 10:02 a.m. ET

WASHINGTON—An important measure of consumer spending unexpectedly dropped at the fastest pace since 2009, a worrying sign for economic growth as shoppers reined in spending at the close of the year.

Retail sales, a measure of purchases at stores, restaurants and online, declined a seasonally adjusted 1.2% in December from a month earlier to $505.8 billion, the Commerce Department said Thursday. That was well below economists’ expectations for a 0.1% increase.

The Commerce Department report showed every major retail category aside from motor vehicles and building materials posted sales declines in December. While retail-sales data can be volatile from month to month, the final month of the holiday season is key for the sector, especially for department stores, clothing outlets and online sellers.

U.S. stock futures turned lower on the disappointing data, while U.S. government bond prices rallied, pressuring the yield on the benchmark 10-year Treasury note. The S&P 500 tumbled 0.6% in morning trading, and yields fell to 2.646% from 2.68%. The WSJ Dollar Index also flipped lower, falling 0.1%.

The report “suggests the economy entered 2019 with much less momentum than anticipated,” Michael Pearce, an economist at Capital Economics, said in a note to clients. Still, he said the strong labor market and drop in energy prices in recent months continue to support consumer spending by adding extra dollars to consumers’ wallets.

Department-store sales slipped 3.3% from a month earlier, and sales at sporting-goods and book stores decreased 4.9% from a month earlier. Health and personal-care store sales fell 2% from the prior month.

Part of the decline can be attributed to low gasoline prices. Gas prices for U.S. drivers were $2.37 a gallon on average in December, down from $2.65 in November, according to the U.S. Energy Information Administration, and sales at gas stations dropped 5.1% from the prior month.

Overall, the drop raises questions about the pace of economic growth at the end of 2018, although economists cautioned that it could prove an anomaly.

The numbers were “much weaker than expected, but so much so that the data lose credibility; the trend may be slowing, but a sudden collapse is at odds with other evidence,” said Jim O’Sullivan, chief economist at High Frequency Economics Ltd.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, echoed that view, describing the data as “so wild that we have to expect hefty upward revisions, but if they stand, they are very unlikely to be representative of the trend over the next few months.”

“The consumer is no longer enjoying tax cuts or falling gas prices, but that’s no reason to expect a rollover,” he added.

Excluding the automobile category, retail sales fell a precipitous 1.8% in December—the starkest monthly decline since December 2008. Excluding spending on gasoline, the decline was slightly less, 0.9%, which was still the largest drop for that category since early 2014.

Sales at nonstore retailers, a category that includes internet merchants like Amazon.com, were down 3.9% compared with a month earlier, the biggest decline since November 2008.

Restaurant sales decreased 0.7% from a month earlier, that category isn’t closely tied with holiday gift-giving.

Weaker than expected sales in December, coupled with November’s downwardly revised 0.1% increase, suggest easing consumer spending, which will feed into the broader pace of economic growth in the fourth quarter. December retail sales increased just 2.3% from a year earlier. Meanwhile total sales for the 12 months of 2018 were up 5% from 2017.

A Bank of America Merrill Lynch report released earlier this week said its credit and debit card data showed retail sales excluding autos softened in both December and January. The polar vortex weighed on sales in January, while the government shutdown had a more muted impact on the aggregate data, according to the brokerage.

Despite lower gas prices, “this is the weakest trend we have seen since mid-2016, suggesting to us that consumers might be cutting back into 2019,” the report said.

Thursday’s release of the U.S. Census Bureau’s report had been delayed because of the partial government shutdown, but the department said response rates were nonetheless at or above normal levels.

U.S. retailers have largely reported strong sales in recent quarters as they have benefited from low unemployment and wage gains. Still, economic and market uncertainty and a prolonged government shutdown at the turn of the year dinged consumer confidence in January.

John Morikis, chief executive of paint company Sherwin-Williams Co., last month said the company was confident about demand in most of its markets this year.

“I’m less confident about the increasing number of economic, political and social variables that are beyond our control. These would include government shutdowns, Fed rate hikes, tariffs, trade wars, immigration and security, to name a few, any one of which could disrupt market demand and raw material supply,” he said during a Jan. 31 earnings call.

- Lauren Pollock contributed to this article