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First holiday purchases weigh on US retail sales; Omicron trail scheduled for January

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WASHINGTON – Retail sales in the United States fell the most in 10 months in December, likely because Americans started holiday shopping in October to avoid empty store shelves.

Economists have cautioned against reading the unexpected drop in retail sales last month reported by the Commerce Department on Friday as a sign of weakness. Consumer spending remains supported by huge savings, rising wages as businesses scramble to find scarce workers as well as booming household wealth.

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Yet the report and news of an unexpected drop in factory output in December suggests that the economy lost momentum at the end of 2021. This trend likely continued in January amid a downward spiral. COVID-19 infections, driven by the Omicron variant, which has disrupted businesses and education.

“It’s clear that most shoppers took the advice to do their holiday shopping early and that, combined with a massive increase in spending on goods earlier in the year, conspired to drive sales down sharply to finish the season. ‘year, “said Tim Quinlan, a senior executive. economist at Wells Fargo in Charlotte, North Carolina.

Retail sales fell 1.9% last month, the biggest drop since February 2021, after increasing 0.2% in November. Economists polled by Reuters had forecast retail sales unchanged. Estimates ranged from a decrease of 2.0% to an increase of 0.8%.

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Retail sales, which are primarily goods, were up 16.9% year on year in December. Unadjusted sales rose 10.0% last month.

Sales could weaken further in January as Omicron restricts consumer traffic to places like restaurants and bars, although some economists expect spending on goods to rise as people stay at home . Retail sales are 19.2% above their pre-pandemic level. Holiday sales jumped 14.1% to a record $ 886.7 billion in 2021, according to the National Retail Federation.

Bottlenecks in supply chains caused by the pandemic have resulted in shortages of goods. The decline in sales from December also likely impacted the so-called seasonal factor, the model the government uses to eliminate seasonal fluctuations in the data.

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“So we don’t think December was all about weakening demand or more cautious consumer behavior,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.

The online sales category was hit the hardest by the seasonal factor drag, plunging 8.7%. Receipts at automobile dealers fell 0.4%. Automobiles remain scarce due to a global semiconductor shortage.

Motor vehicles could remain in short supply for some time. A separate Federal Reserve report released on Friday showed that a 1.3% drop in output at motor vehicle factories helped cut manufacturing output by 0.3% in December.

Factory output rose 0.6% in November. Economists were forecasting a 0.5% increase in production.

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The Fed is still expected to start raising interest rates in March, amid high inflation.

“We don’t think today’s reading will have a significant impact on the Fed’s decision to raise rates, possibly in March, which will depend more heavily on inflation than activity data,” said Andrew Hollenhorst, chief economist at Citigroup in New York. “The seasonal adjustment factor turns very positive in January, suggesting that online sales and overall retail sales will rebound strongly.”

Stocks on Wall Street were down. The dollar appreciated against a basket of currencies. US Treasury prices have fallen.

LARGE WEAKNESS

Sales at electronics and appliance stores fell 2.9%. Receipts at gas stations fell 0.7% as gasoline prices fell from higher levels seen in previous months. Sales at food and beverage stores fell 0.5%. Clothing store sales fell 3.1%. There were also declines in sales at sporting goods, hobby, musical instrument and book stores.

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Sales at furniture stores fell 5.5%, while receipts at electronics and appliance stores fell 2.9%. But sales of building material and garden equipment suppliers rose 0.9%.

Receipts at restaurants and bars fell 0.8%. Restaurants and bars are the only category of services in the retail sales report. These sales increased by 41.3% compared to last December.

Excluding autos, gasoline, building materials and food services, retail sales fell 3.1%. It is also the biggest drop since last February. Data for November has been revised down to show that these so-called core retail sales are falling 0.5% instead of falling 0.1% as previously reported.

Core retail sales are the closest match to the consumer spending component of gross domestic product. Economists lowered their fourth-quarter consumer spending forecast after the data.

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December’s weakness puts consumer spending on a lower growth path as the first quarter approaches. Inflation concerns could also restrain spending. Consumer confidence fell to the second-lowest level in a decade in early January, according to a University of Michigan survey.

GDP growth estimates for the fourth quarter remained bullish, thanks to increasing inventory build-up. A fourth Commerce Department report showed business inventories rose sharply 1.3% in November.

Goldman Sachs cut its growth estimate by half a percentage point to an annualized rate of 6.5%. The economy grew at a pace of 2.3% in the third quarter. Growth last year is expected to have been the strongest since 1984.

“Consumer spending will remain the cornerstone of economic growth this year, but the short-term trajectory will be choppy amid rising Omicron cases and high inflation,” said Lydia Boussour, chief US economist at Oxford Economics in New York. “Overall, the combination of strong growth in labor income, high excess savings and healthy balance sheets will support above-trend consumption growth of 4% this year.”

(Report by Lucia Mutikani; Editing by Andrea Ricci)

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