US retail sales down to lowest point in a decade

The Dow Jones has been volatile after a disappointing report on retail sales. The US Commerce Department said that retail sales dropped to its worst point in almost 10 years.

Why are US retail sales down?

The US Commerce Department said retail sales dropped 1.2% in December 2018. That marks the steepest decline in retail sales since September 2009. Economists had predicted sale increases of 0.2% from 2018. Chris Rupkey, chief financial economist at MUFG Union Bank, said that the worse-than-expected retail news was a surprise.

‘This literally came from out of left field. I thought January would have been bad. All our reports earlier were that holiday sales were sparkling,’ said Rupkey.

Jennifer Lee, director of economic research at BMO Capital Markets, said that the decrease in discretionary spending by US consumers is a troubling sign of a possible drop in consumer confidence.

‘What I find particularly concerning was the pullback in discretionary areas such as food/drink services, and sporting goods/hobby stores. E-commerce also took a dive. These are areas that consumers, if they are worried, will step back from first,’ said Lee.

Is the US government shutdown to blame for bad retail data?

The disappointing data has been dismissed as suspect by some economists because of the lag in information. During the US government shutdown, January retail sales data couldn’t be collected. There were also conflicting reports about holiday shopping sales from Mastercard. Diane Swonk, chief economist, noted that the government shutdown could have impacted the retail sales figures.

‘Part of the problem is the government shutdown. We had a data void, and now we're getting data in that was lagged. Everyone was euphoric that December was a good month, for big box retailers. Traditional retailers not as much,’ said Swonk.

Will Wall Street recover from this retail setback?

Peter Boockvar, chief investment officer at Bleakley Advisory Group, hopes that the December data was just a temporary setback because US consumers are vital to the growth of the US and global economies.

‘The US consumer is holding the global economy on its shoulders. After seeing today's data, we better hope it was a one month outlier and that the rebound in stocks in January and month to date will revive consumer spending,’ noted Boockvar.