The Commerce Department reported on Friday that retail sales fell 1.9 percent in December, reflecting a slower holiday shopping season for many consumers.
It was the first drop after four straight months of sales increases, though the gain in November slowed from October because of the long holiday shopping season. The total sales for the October through December period were up 17.1 percent from a year earlier.
Beth Ann Bovino, chief U.S. economist at S&P Global, said that retail sales have been strong over the past few months and that there was bound to be a headline shock over a weaker number.
She said that this was not a sign of consumer weakness. It seems that consumers are not closing their pocketbooks because of the strong job market and strong balance sheets of households with high savings levels. They are taking a break.
A report this week showed that inflation climbed to its highest level in 40 years at the end of the year, and the retail sales report provides a data point on the mind-set of consumers. The price of goods has gone up due to supply chain issues and robust consumer demand. The Omicron wave has caused widespread staffing shortages and may have caused some consumers to stay away from holiday gatherings.
Retail sales were expected to rise in December. They said in a note last week that inflation came with no impact on spending plans.
The economists wrote that the holiday shopping season appeared to break records and lower-income consumers seemed to be operating with relatively better buying power. The Omicron wave drove more spending to goods than services.
Consumer habits in the United States have been shaped by the Pandemic.
The Omicron variant did not become a prominent threat until December, but fewer people shopped in stores this holiday season. Retail foot traffic in the United States was down between November and January. The decrease in foot traffic in the same period compared with the year before was still a significant change, but it was a slight improvement from the depths of the Pandemic in 2020.
More consumers rely on e-commerce this holiday season, with fewer people shopping in stores.
The biggest U.S. retailers have an advantage due to inflation and supply chain issues. They were able to remain open during the Pandemic because they had a variety of goods that they carry and through initiatives like curbside delivery.
Mickey Chadha, a retail analyst at Moody's Investors Service, said that they were talking about Walmarts and Targets. They leased their own ships and are bringing in product. They have more power to give priority to their vendors. They planned ahead as well.
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The problem was caused by the Pandemic. The global supply chain is in turmoil. The outbreak of Covid-19 caused an economic downturn, mass layoffs and a halt to production. Here is what happened next.
A decrease in shipping. With fewer goods being made and fewer people with paychecks to spend at the start of the Pandemic, manufacturers and shipping companies assumed that demand would drop sharply. Demand for some items would surge as a result of that mistake.
There was a spike in demand for protective gear. In early 2020 the planet needed surgical masks and gowns. Most of the goods were made in China. Cargo vessels began delivering gear around the globe as Chinese factories increased production.
There was a shipping container shortage. The containers were emptied and piled up around the world. The shortage of containers in China was caused by the result of a shortage in other countries.
The demand for durable goods increased. The spending shifted from eating out to online purchases as a result of the Pandemic.
Strained supply chains. Factory goods quickly overwhelmed U.S. ports. The cost of shipping a container from Shanghai to Los Angeles went up tenfold because of swelling orders.
Mr. Chadha said that they have not had to raise their prices as much as smaller retailers, and are likely to benefit from lower-income consumers searching for value.
He said that they are taking market share because they have the ability to price lower and absorb that hit to the margin better than some of the smaller, weaker retailers.
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