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Is December’s Sales Slowdown Cause for Panic?

December’s retail sales data seems to confirm many of the trends shaping last year’s historic holiday season.

The month’s retail sales fell a seasonally adjusted 1.9 percent from November, according to the U.S. Census Bureau, marking the first drop since July and largest dip since February. Excluding spending on automobiles and gasoline, sales tumbled 2.5 percent.

Total sales of $626.8 billion were 16.9 percent higher than December 2020. Total sales for the 12 months of 2021 were up 19.3 percent from 2020 levels. Experts expected a 0.1 percent dip.

Data also indicated that December’s retail trade sales fell 2.1 percent from the month before, but were up 14.4 percent above year-ago figures.

Apparel and accessories sales in December slipped 3 percent from November’s figures, while sales at department stores fell 7 percent, both on a seasonally adjusted basis. Online retailers saw sales fall 9 percent, while furniture and home furnishing sales were down 5.5 percent.

“In November 2021, sales had been consistently growing since August due to back-to-school shopping and holiday shopping promos beginning in October. With concerns over the supply chain and shipping crisis, many consumers began their holiday shopping earlier than usual and well before December, allowing earlier months to see higher gains. Inventory shortages could also have impacted the sales drop, with less products available for purchase due to congested ports and transportation delays,” Naveen Jaggi, president of JLL’s Retail Advisory Services, said.

Economists at Wells Fargo Securities said the drop in retail sales marked a “broad-based decline across various store types” reflecting consumers shopping earlier in October and November rather than any behavior related to Omicron or a spending slowdown.

“The December drop is reminiscent of a similar decline in 2018 when retail sales fell 2 percent in that month. What followed was a sharp rebound in the first quarter of the following year. In fact, the two largest monthly increases of 2019 occurred in January and March of that year,” the economists wrote in a research note published Friday.

While there are concerns about the recent spike in Omicron cases, what has resulted has been a pull back on restaurant dining, travel and other high-contact services. The Wells Fargo economists, who had warned of a possible pullback at year-end since September because they expected consumers to shop earlier this year for holiday gifts, said that “we do not view today’s drop in retail sales as a sign that consumer spending is coming unglued.”

They also noted that any purchases of gift cards will reflect future sales when they are redeemed, rather than at the time of purchase, another factor that also could be weighing on December sales results.

The National Retail Federation largely concurred with these findings.

“We closed out the year with outstanding annual retail sales and a record holiday season, which is a clear testament to the power of the consumer and the ingenuity of retailers and their workers,” NRF President and CEO Matthew Shay said Friday.

“Despite supply chain problems, rising inflation, labor shortages and the omicron variant, retailers delivered a positive holiday experience to pandemic-fatigued consumers and their families. Consumers were backed by strong wages and record savings and began their shopping earlier this year than ever before,” he continued. “This is, in part, why we saw a decline in sales from November to December. NRF expects further growth for 2022, and we will continue to focus on industry challenges presented by COVID-19, the supply chain, labor force issues and persistent inflation. The numbers are clear: 2021 was an undeniably outstanding year for retail sales.”

NRF chief economist Jack Kleinhenz touted retail’s “solid momentum” during the peak season.

“Worries about inflation and COVID-19 put pressure on consumer attitudes but did not dampen spending, and sales were remarkably strong,” he said. “Even though many consumers began shopping in October, this was the strongest November and December we’ve ever seen. Despite supply chain challenges, retailers kept their shelves stocked and consumers were able to fill their carts both in-store and online. Holiday spending during 2021 reflected continued consumer demand that is driving the economy and should continue in 2022.

“Nonetheless, we should be prepared for challenges in the coming months due to the substantial uncertainty brought by the pandemic,” Kleinhenz added.

Additional reporting by Jessica Binns.

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