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Santa at Half-Speed--Retail Sales Drop Sharply in December

Posted by Joseph Trevisani on Jan 14, 2015 3:21:00 PM

Retail sales in the U.S. plunged in the December, a drop that will reduce the fourth quarter’s economic performance and diminish the prospects for a stronger recovery in the New Year.

The 0.9 percent fall in December sales was far worse than the median -0.1 percent estimate from the Bloomberg survey of economists and was the largest drop since last January's 1.3 percent decline.  It followed the downwardly revised 0.4 percent gain in November that was originally estimated at 0.7 percent, and October figures that were adjusted to 0.3 percent from 0.5 percent, according to information from the Commerce Department in Washington today.   

The weakness was widespread with 9 of 13 major retail categories showing declines.

Retail sales without automobiles dropped 1 percent on a flat estimate and November's result was revised lower to 0.1 percent from 0.5 percent. Sales without automobiles and gasoline, which removes most of the recent nominal prices declines in energy costs, slipped 0.3 percent in December much less than the 0.5 percent forecast.

Most importantly for the fourth quarter GDP calculation the ‘retail sales control group' which parallels the items used in the government's  analysis, fell 0.4 percent on expectations for a 0.4 percent increase. It was the worst performance since last January's weather related 1 percent decline. 

Retail sales numbers are dollar cost based, that is they are not adjusted for price changes.

Lower energy prices had been expected to support spending and to show up in higher receipts in all categories of purchases except gasoline and related items as the money saved on fuel transferred to electronics, housewares and the like.  

Though falling energy prices do not generate any extra income for the consumer, many analysts had predicted that the fuel bonus would be spent elsewhere, maintaining overall consumption. 

Sinking gas prices have hurt receipts at filling stations, purchases there slipped 6.5 percent in December, the most in six years. Gas station receipts were about 10 percent of total retail sales last year.

The price of a gallon of regular gasoline was $2.10 on January 13th, the cheapest since May 2009, according to the American Automobile Association. It has fallen 24 percent since December 1st and 43 percent since its peak at $3.69 last April. 

Although the past year has seen relatively robust job creation, averaging 246,000 new positions each month, wage growth has not kept pace. Average hourly earnings were just 1.7 percent higher in December than a year earlier, barely above the 1.3 percent CPI rate or the 1.2 percent (November) core PCE rate preferred by the Federal Reserve. 

Consumers have decided to save their gasoline windfall, regardless of their survey measured optimism for the economy which in one survey was at a seven and a half year high in December.

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

retail jan 14

retail control jan 14

nfp jan 14

ahe jan 14

 

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