WASHINGTON, Feb 14 — US retail sales recorded their biggest drop in more than nine years in December as receipts fell across the board, suggesting a sharp slowdown in economic activity at the end of 2018.
The economy’s outlook was further dimmed by other data today showing an unexpected increase in the number of Americans filing claims for unemployment benefits last week. That pushed the four-week moving average of claims to a one-year high, an indication that job growth was moderating.
There was also little sign of inflation in the economy, with producer prices dropping in January for a second straight month. Moderate inflation and softening domestic demand support the Federal Reserve’s pledge to be “patient” before raising interest rates further this year.
“This suggests that the word ‘patience’ will be in the Fed’s vernacular for some time,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
The Commerce Department said retail sales tumbled 1.2 per cent, the largest decline since September 2009 when the economy was emerging from recession. Data for November was revised slightly down to show retail sales edging up 0.1 per cent instead of gaining 0.2 per cent as previously reported.
Economists polled by Reuters had forecast retail sales increasing 0.2 per cent in December. Retail sales in December rose 2.3 per cent from a year ago.
The December retail sales report was delayed by a 35-day partial shutdown of the federal government that ended on January 25. No date has been set for the release of the January retail sales report, which was scheduled for publication tomorrow.
The plunge in retail sales came amid a sharp stock market sell-off and drop in consumer confidence in December. The longest government shutdown could also have undercut sales.
Some economists questioned the credibility of the report, arguing that the shutdown could have impacted on the collection of data. But the Commerce Department said the “processing and data quality were monitored throughout and response rates were at or above normal levels for this release.”
Excluding automobiles, gasoline, building materials and food services, retail sales dropped 1.7 per cent last month after an upwardly revised 1.0 per cent surge in November. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have jumped 0.9 per cent in November.
December’s sharp drop in core retail sales suggested a moderation in the pace of consumer spending in the fourth quarter. Consumer spending, which accounts for more than two-thirds of the US economy, increased at a 3.5 per cent annualised rate in the July-September quarter.
As result of the weak retail sales report, economists slashed their fourth-quarter gross domestic product growth estimates by as much as seven-tenths of a percentage point to as low as a 2.0 per cent rate.
Growth estimates could be trimmed further after another report from the Commerce Department showed retail inventories excluding automobiles tumbled 1.0 per cent in November, the most since December 2008.
The economy grew at a 3.4 per cent pace in the July-September period. US Treasury prices rose on the data, while the dollar fell to session lows against a basket of currencies. Stocks were trading lower.
Broad weakens
In December, online and mail-order retail sales dropped 3.9 per cent, the biggest drop since November 2008. Receipts at service stations dived 5.1 per cent, the biggest fall since February 2016, reflecting cheaper gasoline prices.
There were also declines in receipts at clothing and furniture stores. Americans also cut spending at restaurants and bars. Sales at hobby, musical instrument and book stores plunged 4.9 per cent, the biggest drop since September 2008.
But sales at auto dealerships rose 1.0 per cent in December and receipts at building material stores gained 0.3 per cent.
The outlook for consumer spending, which has been underpinned by a strong labour market and cheaper gasoline, is not encouraging. A report this week from the New York Fed showed the overall debt shouldered by Americans edged up to a record US$13.5 trillion (RM54.9 trillion) in the fourth quarter of 2018.
In a separate report today, the Labour Department said initial claims for state unemployment benefits increased 4,000 to a seasonally adjusted 239,000 for the week ended February 9.
Economists had forecast claims falling to 225,000 in the latest week. Claims surged to a near 1-1/2-year high of 253,000 in the week ended January 26 and last week’s surprise increase suggested some ebbing in labour market conditions.
The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility, rose 6,750 to 231,750 last week, the highest level since January 2018.
In another report today, the Labour Department said its producer price index for final demand dipped 0.1 per cent last month as the cost of energy products and food fell. The PPI dipped 0.1 per cent in December.
In the 12 months through January, the PPI rose 2.0 per cent. That was the smallest gain since July 2017 and followed a 2.5 per cent rise in December. Economists had forecast the PPI edging up 0.1 per cent in January and increasing 2.1 per cent on a year-on-year basis.
The PPI report came on the heels of data yesterday showing consumer prices were unchanged in January for a third straight month. — Reuters
