An Economic Mystery: The Worst December for Retail Sales in a Decade

1936: American actor Jack Mulhall (1888-1979) examines a set of fingerprints in 'The Clutching Hand'. Title: The Clutching Hand Studio: Stage and Screen Director: Albert Herman (Photo by Hulton Archive/Getty Images)
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Retail sales unexpectedly plunged in December, according to official government statistics. But economic sleuths are not sure why.

The government reported that retail sales bounced back a bit in January, rising 0.2 percent overall and 1.2 percent excluding gas and automobiles. But it revised December down from the originally reported 1.2 percent drop to a 1.6 percent drop.

That deep and unusual decline has set a lot of economy watchers scratching their heads. There have been some signs from retailers that sales were slow in December between Thanksgiving and Christmas, with both Kohl’s and Macy’s producing disappointing results. But Target did very well and Walmart posted its strongest holiday quarter in more than a decade and said it saw no signs of weakness in U.S. consumer spending. Same-store sales at Home Deport were up a whopping 7.5 percent.

This is not something being caused by online retailers stealing market share from brick-and-mortars. In fact, the government said “nonstore retailers”–the category that tracks online sales–saw a 5.0 percent decline in December. That’s worse than the 3 percent decline originally reported. It’s so bad that it stretches credibility.

Amazon, by far the largest U.S. nonstore retailer, said that it saw a “record-breaking” holiday season, with “more items ordered worldwide than ever before.” Walmart said its online sales were up 43 percent. Etsy’s fourth quarter sales were up 46.8 percent.  Ebay also said it had a great holiday season.

Other economic indicators would generally point to a high level of sales. Unemployment was near the lowest level in decades and wage growth was strong. Consumer and business sentiment were down from record highs set earlier in the year but still far into territory that indicates a positive outlook

“We will be wondering for years about what happened to the consumer in December,” CNBC’s Steve Liesman said Monday. “Honestly, I still sort of do not believe the numbers.”

One thing that might have spooked consumers: a volatile stock market. After a strong performance in 2017 and some gains over the summer, the stock market saw a steep and sudden drop in the final quarter that had many pundits asking if the market was predicting a recession.

Another possibility: the election fo 2018 produced a Democratic majority dedicated to resisting President Donald Trump’s agenda. At the very least, that promised gridlock ahead and in December helped produce a partial government shutdown.

Liesman raised a third possibility: error. The government’s method for estimating sales may be undercounting online retail sales. That would mean as more sales move online, the government’s underestimation of economic activity will grow larger.

“I have my suspicion that a lot of stuff has moved over to online and the government is not capturing it,” Liesman said.



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