Retail sales in December fell the most they have in nine years, signaling that the biggest part of the economy, consumer spending, fell apart in 2018.
Sales fell 1.2 percent, a number that has not been so low since September of 2009, the Census Bureau reported. While a decline in gas prices was expected to impact the retail sales report, the decline was seen in almost every sector.
The numbers indicate that American consumers significantly reigned in their spending during the last holiday season, often considered a sign of an oncoming economic downturn. However, many economists say that a huge drop one month does not necessarily mean a recession is on the horizon.
“This vastly overstates the weakness of the consumer,” said Jay Bryson, global economist at Wells Fargo Securities. He added that he would need to see a downturn in the jobs market before becoming concerned.
Economists, surprised by the weakness, cast about for reasons to explain the drop. Poor weather could have eaten at sporting goods sales and the absence of Toys R Us, which went out of business last year, might have lessened holiday spending.
A plunge so inconsistent with passed retail sales reports and the addition of 304,000 jobs in January raises questions about the validity of the data, which was delayed one month due to the government shutdown. Scott Brown, chief economist at Raymond James, said there may have been data collection problems caused by the shutdown.
“It’s almost shocking on the surface that the numbers were so weak,” Brown said.
The Census Bureau attempted to dispel concerns in the report, stating that “processing and data quality were monitored throughout and response rates were at or above normal levels for this release.”
The decline was almost completely across the board. Nonstore retailer sales dropped 4.1 percent, health sales fell 2.0 percent and sporting goods sales, 4.9 percent. The sharpest decline in sales, 5.1 percent, was at the gas stations, although this drop was somewhat expected. The only sectors that saw growth were auto dealers with 1.0 percent and building materials stores with 0.3 percent.
The retail sales data from November of last year, which initially showed an increase of 0.2 percent, was revised to show slightly less growth at 0.1 percent.
Despite the decline, the tight job market and wage growth acceleration has left Ryan Sweet, director of real-time economics at Moody’s Analytics, optimistic.
“In the end, I think fundamentals will win the day and the economy will grow at a decent clip this year,” Sweet said.