No, December’s Retail Sales Didn’t “Fall”… At Least Not How You Think

The headlines certainly look dire. The Wall Street Journal’s “Retail Sales Declined in December as Fastest Pace Since 2009” not only leaves nothing to the imagination, its paints a grim picture of what may lie ahead.

The only problem is, the message is misleading at best, and outright false at worst, proving most of the media will stop at nothing to whip up some fear. After all, the only thing that sells newspapers – or clicks, these days – better than greed is fear.

Reality: Retail spending fell two months ago… down 1.2% compared to November’s tally. But, retail spending in December of last year was actually 1.9% better than it was in December of 2017, which is a much more meaningful comparison. Factoring in less sensitive goods like construction supplies and food services, retail spending was up 2.2% year-over-year.

A more telling picture is a look at Q4’s total spending, which reached $1.35 trillion, versus $1.30 trillion in the fourth quarter of last year. Shoppers accelerated their spending into an earlier part of the quarter. November’s year-over-year consumption was up 4.5%. Compared to that breakneck speed, it would have been surprising if spending didn’t relatively slow. October’s spending was also oddly high, as retailers and shoppers alike sought to beat other retailers and shoppers to the best deals.

Even then, however, there’s more to the story.

Yes, the pace of spending growth was the weakest it’s been in nearly a decade, but it must be mentioned that December’s total was up against a monumentally tough comparison. That is, in December of 2017, the nation’s retail consumption grew a whopping 5.7%. Any plausible number produced this past holiday shopping season was going to look tepid, as the bar was set so high.

Regardless, the report and the subsequent headlines spurred chatter of a looming recession.

Anything’s possible. Given nearly every other economic data nugget though — not the least of which is record-high employment levels and record high hourly pay rates — those recession fears are tremendously overblown right now.

So how, pray tell, do headlines like the Wall Street Journal’s (though the Journal’s was hardly an outlier) make it to the light of day? Because they’re just close enough to the truth that nobody bothers to call the company out on it.

To that end, the data from the Census Bureau is already being deemed suspect as-is.

“In short, much weaker than expected, but so much so that the data lose credibility,” says Jim O’Sullivan, chief U.S. economist at High Frequency Economics. He added “The trend may be slowing, but a sudden collapse is at odds with other evidence. To some extent, the weakness may just be payback for exaggerated strength in Oct/Nov., but the net result is less spending growth in Q4 as a whole than expected.”

MasterCard’s SpendingPulse study released near the end of last year also suggested that the holiday shopping season last year was the best it had been in six years.

Even if the data is on-target, however, not all analysts believe the stumble will persist. Ian Shepherdson, analyst with Pantheon Macroeconomics, notes “These data are so wild that we have to expect hefty upward revisions, but if they stand, they are very unlikely to be representative of the trend over the next few months. The consumer is no longer enjoying tax cuts or falling gas prices, but that’s no reason to expect a rollover.”

And for what it’s worth, December’s annualized (year-over-year) growth rate of 1.9% actually wasn’t the worst since 2009. In January of 2014, spending growth slipped to 1.6%. It was up against an unusually-high comparison from January of 2013 as well.