Suddenly, the American consumer looks tired.
Retail sales dropped in December by the most in 10 months, key data out Friday showed.
The 1.9% decline nearly matched the lowest estimate from more than five-dozen economists. Consensus expected only a slight drop.
December’s plunge was the largest since February which, you’ll recall, was a month sandwiched between two stimulus checks (figure above).
The ex-autos print was a woeful -2.3%. Consensus expected a small gain. The control group fell 3.1% against expectations for no change. A smattering of downward revisions were insult to injury. Sales at non-store retailers dropped almost 9%.
You could cite a laundry list of factors. Inflation angst is likely weighing on consumer psychology, especially given that annual wage gains aren’t keeping pace with price pressures. In the lead-up to the holiday shopping season, many suggested Americans were front-loading their spending in anticipation of empty shelves given rampant reports of snarled supply chains and the prospect of delays receiving items ordered from overseas.
Sentiment may have taken an additional hit last month from news that Joe Manchin wouldn’t support Build Back Better. That introduced considerable uncertainty about the future of the revamped child tax credit which, in turn, forced countless families to ponder an abrupt end to a stream of monthly payments.
Then there’s Omicron. Spending at food services and drinking places dropped 0.8% last month, underscoring persistent concerns about the services industry amid rolling COVID waves.
“This will further erode Q4 growth estimates,” BMO’s Ian Lyngen said Friday, before noting that “the official Fed stance remains that this is consumption delayed into 2022 rather than a more significant impact to the trajectory of spending.”
“Today’s evidence suggests the Omicron wave has had a more damaging impact on Americans’ willingness to go out and spend money than most thought likely, while high inflation may also have contributed to more cautious consumer attitudes,” ING’s James Knightley remarked, adding that “the one crumb of comfort is that retail sales are still 19% above pre-pandemic levels and employment and wages are rising.” Just not enough to keep pace with inflation.
A look across categories showed declines everywhere, from furniture outlets to electronics retailers to grocery stores to department stores. Expect GDP estimates to be revised lower.
This was the MMT prediction — the end of any fiscal stimulus, combined with the impending end of the supply-chain bullwhip, would bring on deflationary pressure early in the year.
If you believe that, there are a lot of deals in the market right now.
And so Cathy W’s inventory buildup coming into view.
I’ve seen charts showing the “excess cash” in most consumers’ bank accounts is waning, while consumer credit balances are rising, suggesting the consumer is less flush. That seems a natural result of the fading of pandemic stimulus and the failure of BBB. I would guess most of the pressure is in demographics south of JPM’s clientele. That clientele, however, may still be feeling a touch of consumer fatigue – how many kitchen remodels and furniture replacements can one do in any 3 year period? SSS comps are tough for most retailers ex-dining/leisure, labor costs rising, shrink too. I worry more for retail than for banks.
re: “the official Fed stance remains that this is consumption delayed into 2022”. Good news! That means that retail weakness will only be transient…
“Transitory.” “Transient” is Christine Lagarde’s go-to 🙂
Confirms my anecdotal observations in the runup to Christmas: piles of stuff (made in China) and no one shopping. On the other hand, package deliveries to our building on the UWS were off the charts. Does the number include off- and online?
@mfn I recall your observations from the field at the time. Nicely done.
Online sales are accounted for, towards the bottom of the tables:
454 Nonstore retailers …………………….………… ?8.7 10.7 (% mom & yoy)
H-Man, if retail sales continues to crumble, residential real estate is next while running head to head with commercial retail.
Through 2021 the market was dominated by an ‘end of the world’ scenario. Now it’s shifted to learning to live with covid, climate catastrophe and societal crisis for the long run – a new paradigm and a significant shift in consumer attitudes. Early indicators might be found in trends in car sales. Will we ever get back to pre-covid pricing and availability?