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U.S. retail sales slowed in December as consumers grappled with the Omicron variant, high inflation, and supply-chain problems. Anthony Okolie speaks with Maria Solovieva, Economist, TD Bank, about the potential impact of weaker sales on U.S. economic growth in 2022.
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- The most recent US retail sales results may be providing a warning sign for the economy. The data for December, a key shopping month, disappointed coming in well below expectations. Maria, what do the numbers tell you?
- Anthony, indeed, the numbers for December came in lower than we expected. We were hoping for a flat reading, maybe just a little bit of a decline. But December came in at almost 2% lower for retail sales than the reading in November. And on top of that, November reading was revised just marginally by a tenth of a percentage point, but still you have a decline on top of the lower reading already. So it is disappointing.
But in a way, December was the victim of its success. December retail sales was a victim of the success during the full year because we had the best year in the history with almost 20% increase year on year. And in fact, December to December, it was an increase of 17%. So we were expecting a little bit of a slowdown, just not as much of a slowdown.
- And so what drove the big decline in December?
- There were a number of factors. We think that the biggest factor was the fact that the shoppers made all of their purchases or majority of their purchases in October. So there was a lot of frontloading because people were hearing the news of the supply shock, the potential of not having the stock of items that they would prefer to see for their purchases. So a lot of that was due to the frontloading.
Secondly, we think also some of the sales were missed because of the shortages. But now, here from basically the supply side. So the biggest example of that would be auto sales, where the demand is still strong and people are willing to purchase cars, but unfortunately, the production is much slower and delivery times are much slower. So those numbers were impacted by the supply itself.
We also think that consumers probably have slowed their purchases because of the inflation figures. So products are becoming more and more expensive. And consumers are just not willing to take that anymore. So looking at the numbers from the University of Michigan's Consumer Sentiment survey, we're seeing that consumers are worried about inflation. And looking at the number in December, it was 7% year on year increase, which is the highest in almost 40 years.
And lastly, we think that a little bit of Omicron is probably-- the Omicron-related delays-- is factored in as well in December. Although, it's hard to gauge because usually it affects services much more, and we don't have services numbers yet.
- OK. We've also heard a lot about people moving online to do the shopping. How do the non-store or e-commerce retailers do in December?
- Yeah, looking at the composition, the decline was actually driven by the nonstore retailers, which is very interesting because if you think that this is related to Omicron, the decline in retail trade was related to Omicron, then you actually don't see that because, in that case, you would probably see higher or stronger sales in the e-commerce. But we are seeing the opposite. The retail trade on e-commerce declined by almost 8% and dragged the headline number as well.
But again, looking at year on year, we actually see that e-commerce is very strong. It increased almost 14%. And that's already on top of 2020 increase of 20%. So the e-commerce sector is strong. It just wasn't strong in December.
- OK, so you mentioned that e-commerce was strong over the full year. What are the possible implications for the traditional brick-and-mortar stores?
- There is probably going to be a little bit of a consolidation going on. And we're seeing that already. It's just now we probably can say that this is more of a structural shift because people are getting used to shopping online. So even those who weren't able to shop or didn't feel comfortable before were forced to do that during the COVID-19 pandemic. So now they're feeling more comfortable.
And it's likely that people are shifting their preferences to e-commerce for some products, which means that regular retailers are moving to that new niche as well. So they are trying to establish a little bit of the e-commerce available, which means we're probably going to see consolidation in stores going forward.
- So given the weak retail figures, could that impact to the economics outlook for US growth in the first quarter?
- Yes, we are revisiting our numbers, our forecast right now. We actually are tailoring towards a lower growth in Q4 2021. And because of the slowdown in the momentum on the retail trade, we're also lowering our growth forecast for Q1 2022 by approximately one percentage point at this time.
- Maria, thank you very much for joining us.
- Thank you so much for having me.
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- Anthony, indeed, the numbers for December came in lower than we expected. We were hoping for a flat reading, maybe just a little bit of a decline. But December came in at almost 2% lower for retail sales than the reading in November. And on top of that, November reading was revised just marginally by a tenth of a percentage point, but still you have a decline on top of the lower reading already. So it is disappointing.
But in a way, December was the victim of its success. December retail sales was a victim of the success during the full year because we had the best year in the history with almost 20% increase year on year. And in fact, December to December, it was an increase of 17%. So we were expecting a little bit of a slowdown, just not as much of a slowdown.
- And so what drove the big decline in December?
- There were a number of factors. We think that the biggest factor was the fact that the shoppers made all of their purchases or majority of their purchases in October. So there was a lot of frontloading because people were hearing the news of the supply shock, the potential of not having the stock of items that they would prefer to see for their purchases. So a lot of that was due to the frontloading.
Secondly, we think also some of the sales were missed because of the shortages. But now, here from basically the supply side. So the biggest example of that would be auto sales, where the demand is still strong and people are willing to purchase cars, but unfortunately, the production is much slower and delivery times are much slower. So those numbers were impacted by the supply itself.
We also think that consumers probably have slowed their purchases because of the inflation figures. So products are becoming more and more expensive. And consumers are just not willing to take that anymore. So looking at the numbers from the University of Michigan's Consumer Sentiment survey, we're seeing that consumers are worried about inflation. And looking at the number in December, it was 7% year on year increase, which is the highest in almost 40 years.
And lastly, we think that a little bit of Omicron is probably-- the Omicron-related delays-- is factored in as well in December. Although, it's hard to gauge because usually it affects services much more, and we don't have services numbers yet.
- OK. We've also heard a lot about people moving online to do the shopping. How do the non-store or e-commerce retailers do in December?
- Yeah, looking at the composition, the decline was actually driven by the nonstore retailers, which is very interesting because if you think that this is related to Omicron, the decline in retail trade was related to Omicron, then you actually don't see that because, in that case, you would probably see higher or stronger sales in the e-commerce. But we are seeing the opposite. The retail trade on e-commerce declined by almost 8% and dragged the headline number as well.
But again, looking at year on year, we actually see that e-commerce is very strong. It increased almost 14%. And that's already on top of 2020 increase of 20%. So the e-commerce sector is strong. It just wasn't strong in December.
- OK, so you mentioned that e-commerce was strong over the full year. What are the possible implications for the traditional brick-and-mortar stores?
- There is probably going to be a little bit of a consolidation going on. And we're seeing that already. It's just now we probably can say that this is more of a structural shift because people are getting used to shopping online. So even those who weren't able to shop or didn't feel comfortable before were forced to do that during the COVID-19 pandemic. So now they're feeling more comfortable.
And it's likely that people are shifting their preferences to e-commerce for some products, which means that regular retailers are moving to that new niche as well. So they are trying to establish a little bit of the e-commerce available, which means we're probably going to see consolidation in stores going forward.
- So given the weak retail figures, could that impact to the economics outlook for US growth in the first quarter?
- Yes, we are revisiting our numbers, our forecast right now. We actually are tailoring towards a lower growth in Q4 2021. And because of the slowdown in the momentum on the retail trade, we're also lowering our growth forecast for Q1 2022 by approximately one percentage point at this time.
- Maria, thank you very much for joining us.
- Thank you so much for having me.
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