Skip to content
It will take time to dig that hole in consumer spending

 | Top stories

It will take time to dig that hole in consumer spending

| Business Top stories | World News


Consumer spending ended last year on a negative note. And with the sharp rise in Covid-19 cases, the risk is that it will weaken further.

The Commerce Department said on Friday that retail sales fell 1.9% in December from November, a much larger drop than the 0.1% drop predicted by economists. Almost all types of retailers saw declines: department store sales fell 7% from the previous month, for example, electronics and appliance store sales fell 2.9% and Non-store retailers, a category dominated by Amazon.com, fell 8.7%.

There are a number of possible factors behind the decline, and it seems likely that all of them were at work to some extent.

For starters, a lot of vacation spending was postponed to previous months as buyers worried about supply chain shortages bought early. In fact, the level of sales in the fourth quarter is still 2% higher than in the third quarter.

Economists reduced related spending estimates as a result of the report, but still believe the economy has grown strongly. JPMorgan Chase,

for example, consumer spending is estimated to have grown at an annual inflation-adjusted rate of 3.1% in the fourth quarter, with gross domestic product growing at an annual rate of around 7%.

Supply chain issues also played a role. The global semiconductor shortage continued to hamper the availability of cars and appliances, while some retailers may also have given lower priority to the availability of non-holiday items.

Last, but not least, there is Omicron. The rapid rise in Covid cases it sparked may not have weighed on sales until the second half of December, but it appears to have weighed them down nonetheless. The 0.8% drop in sales of food services and drinking places from November gives some idea.

Due to weak sales in December compared to October and November, the level of spending at the end of the fourth quarter was likely below its fourth quarter average. So just to get back to the fourth quarter, sales will need to increase a bit.

It will be difficult as long as Omicron is there. The disruption caused by the variant is significant and should continue to weigh on spending for a few weeks. It seems almost certain that the economy will grow at a much slower pace in the first quarter than in the fourth.

On the other side of Omicron, things should get better, of course. People will want to catch up on deferred spending, and a strong labor market should empower them. Spring should be better, but that’s not how anyone wanted to start the year.

Write to Justin Lahart at justin.lahart@wsj.com

Copyright © 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

It will take time to dig that hole in consumer spending

| Local Business News Yahoo news
wsj

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.