December Retail Sales Take A Dip
The unexpected and sudden plunge in the retail sales data in December raised concerns about a recession. However, economists said that the biggest drop in sales data in nine years coincides with other data and may be suspect. Wall Street took the data seriously, and economists cut fourth-quarter GDP forecasts. JP Morgan also slashed its growth estimate to two percent from 2.6 percent.
Chris Rupkey, the chief financial economist at MUFG Union Bank, said that the sales data came straight out of left field. Earlier reports showed that holiday sales were on the rise. According to the Commerce Department, retail sales fell 1.2 percent in December. It is the most significant decline in the last nine years, since September 2009. The report was released late due to the government shutdown, and no release date for the January figures have been announced yet.
Diane Swonk, the chief economist at Grant Thornton, said that this is against the blockbuster employment numbers. It has left economists scratching their heads and making them believe that the data is highly susceptible. According to experts, the report was expected to display a 0.2 percent gain. Without inducing gasoline building materials, automobiles and food, the core retail sales dipped 1.7 percent and the 1 percent revised jump in November. The report stated that online and mail-order retail sales in December also fell 3.9 percent, which is the biggest drop since November 2008.
Although the report seems questionable, economists are not dismissing it either. A few other factors might have outweighed the consumers’ behavior, like the sudden and violent drop in the stock market. The 35 day U.S. government shutdown also started in late December and ended on 25th January. This might have had an impact on the sentiment rather than actual sales.
The retail sales data also seems to conflict with other data of holiday shopping, including MasterCard Spendingpulse, which reported a 5.1 percent increase in holiday sales from November 1st to December 26th. It also reported a 19.1 percent increase in online sales. Rupkey also said that it might be a reaction to the sudden drop in the stock market. Maybe the economy will recover, but it also depends on the ongoing negotiations between the Trump administration and China.
The increased interest rates on December 19th by the Federal Reserve also added to the uncertainty. Jerome Powell, Fed Chairman, has indicated the Fed will continue this path to shrink its balance sheet.