Retail sales declined for the first time in five months, falling 1.9% m/m in December, well below the consensus estimate for a modest decline of 0.1%. November’s reading was also revised down to +0.2% m/m from 0.3% m/m reported earlier.
Supply-chain disruptions continue to weigh motor vehicles and parts, where sales posted a decline of 0.4% m/m. The November reading, however, was revised up to 0.2% m/m from -0.1% m/m reported earlier.
Excluding autos, retail sales were down by 2.3% m/m. Sales at gasoline stations declined by 0.7%, partially reflecting a decline in energy prices in December.
Sales in the “control group”, which exclude the most volatile components and are used in calculating personal consumption expenditures (and GDP), were down by 3.1% m/m. November’s gain was also revised down (to -0.5% m/m from the advance reading of -0.1% m/m).
- Non-store retailers (-8.7% m/m) accounted for the majority of the decline in the control group, followed by department stores (-1.5% m/m), Most other holiday-sensitive categories were down, including food service & drinking places (-0.8% m/m).
- It wasn’t all bad news: sales at miscellaneous stores retailers, building materials retailers and health & personal care stores were up by 1.8%, 0.9% and 0.5% m/m, respectively.
Key Implications
The report came in much weaker than expected, and from a lower base as November sales were revised down. The decline suggests that consumers, faced with rising prices, are normalizing their spending. This may also be the result of shoppers front-loading their purchases in the wake of supply chain challenges and reports of holiday shortages.
Still, 2021 exits the stage with record retail sales performance: 19.4% growth from December to December. The outsized gain can be attributed to multiple factors, including two rounds of fiscal stimulus, solid income recovery, and, less positively, accelerating price growth. The award for the most valuable player this season goes to auto sales, which accounted for nearly five percentage points of the gain – much of that due to higher prices.
Looking to the year ahead, retail trade is will slow from its record pace. The near-term outlook is clouded by the Omicron-related disruptions. While January usually suffers from the post-holiday spending fatigue, retail sales may get a boost as consumers shift preferences towards goods in their spending basket this month.
