Retail sales fell sharply in December as Omicron, inflation and deficits took a bite out of consumer spending.
A triple blow from Omicron, deficits and inflation hit a big blow to retail sales in the United States last month, as the powerful American consumer lost part of their spending mojo.
U.S. retail and food service sales fell 1.9 percent in December, an advanced estimate by the U.S. Department of Commerce released Friday showed. This is the sharpest drop in 10 months and follows November when retail sales increased a revised 0.2 percent.
The early snapshot is one of the first data reports to capture the impact of the fast-spreading Omicron variant on the U.S. economic recovery. But some analysts say persistent deficits and rising prices are the main factors weighing on consumer spending, which drives about two-thirds of U.S. economic growth.
“The 1.9% drop in retail sales in December appears to primarily reflect the continued impact of higher prices and consumption shortages, with the Omicron wave having only a modest impact,” said Micheal Pearce, senior U.S. economist at Capital Economics said in a note. to customers.
December is normally a strong month for retail sales, but the all-important holiday shopping season started early last year as consumers got the message that supply chain snorkels can wreak havoc on their gift lists.
“Early holiday shopping caused by supply chain concerns, higher prices and the spread of Omicron led to a surprising decline in retail sales in December,” said Lydia Bourssour, chief economist at Oxford Economics.
Indeed, the gloomy December data tied a healthy year that saw total sales for the 12 months of 2021 rise by 19.3 percent from 2020.
But headwinds doom. Omicron caused a flurry of workers reporting sick, as well as flight and event cancellations. The virus, as well as rising inflation and persistent shortages of materials and workers, is expected to weigh on growth in the last three months of 2021. And analysts see that declining momentum as a downward risk for growth forecasts for the first three months of this year.
“Consumer spending will remain the cornerstone of economic growth this year, but the path in the short term will be volatile amid increasing Omicron cases,” Boussour said.
Prices consumers paid for goods and services in December saw them largest annual increase since 1982. But in a sign that inflation may be ready to ease in the months ahead, rising producer prices have shifted last month.
Late last year, the US Federal Reserve turned its focus away from keeping borrowing costs low to help the US labor market recover and to keep a lid on inflation.
At its final meeting of 2021, the Fed says it sees at least three inflation-cooling interest rate hikes in the charts this year, and many analysts are now asking for four.