December Retail Sales Drop an Unexpected 0.9 Percent as Consumers Use Caution

Retail sales took an unexpected dip in December, a signal that shoppers kept a tight watch on their year-end spending despite a boost from falling gas prices and a better job market.

In December, retail sales dropped 0.9 percent to $442.9 billion, the largest fall since January 2014, the Commerce Department said Wednesday. The boost in spending from October to November was also revised downward, to 0.4 percent from 0.7 percent.

When stripped of the volatile gas, autos, building and food-services sectors, retail sales fell 0.4 percent in December after rising 0.6 percent in November.

The sober report indicates that U.S. shoppers remain cautious as slow wage growth tempered other signs of a rebounding economy. Average hourly pay climbed a slight 1.7 percent last year, and slipped 0.2 percent in December, the government said last week.

“Data on average hourly wages was very disappointing.” Jack Kleinhenz, chief economist of the National Retail Federation, said after the wage data was released. “While the labor market has recovered from recessionary lows, it’s still not strong enough to generate or pressure wage increases.”

Retail sales in December can be a crucial barometer of consumer sentiment, especially during the make-or-break year-end shopping season when retailers can make up to 40 percent of their annual sales. Economists keep a close eye on consumer spending because it makes up some 70 percent of U.S. economic activity.

Several categories usually popular during the year-end shopping season recorded a decline.

Electronics and appliance stores, which got a boost in November from Black Friday, showed a 1.6 percent drop in December. General merchandise stores reported a 0.9 percent decline, while department-store sales slipped 0.2 percent.

Consumers spent 0.3 percent less on clothing and accessories shops, while spending also fell 1.9 percent on building materials and garden supplies. In all, nine out of 13 categories suffered a drop.

That’s despite falling gas prices that sent gas-station sales falling 6.5 percent last month. Consumers are paying roughly $1 less for a gallon of regular gas compared to a year earlier, and California motorists closed out 2014 enjoying the lowest pump prices in more than five years.

With the year-end shopping season now in the rear-view mirror, some experts are anticipating that a large number of seasonal retail workers are going back on the job hunt again.

Retailers hired about 603,200 employees in November and December, down 4 percent compared to the same period in 2013, according to a report from consulting firm Challenger, Gray & Christmas Inc. Now some retailers are ready to trim temporary and full-time employees from their payrolls.

“The challenges that some retailers faced over the holidays are having negative consequences as the new year begins,” the report said.

This month, Macy’s said it was closing 14 stores, and could lay off up to 2,200 workers. J.C. Penney is shuttering about 40 locations and cutting 2,250 employees from its staff.

This article appeared in print in the January 15th, 2015 edition of Hamodia.