Retail Sales Post Largest Decline in 11 Months in December

Retail Sales
Nam Y. Huh/APCustomers shop at Nordstrom Rack in Schaumburg, Ill., last month.

By Lucia Mutikani

WASHINGTON -- U.S. retail sales recorded their largest decline in 11 months in December as demand fell almost across the board, tempering expectations for a sharp acceleration in consumer spending in the fourth quarter.

The retail sales fell 0.9 percent last month after a 0.4 percent increase in November.

It was the biggest decline since last January and exceeded economists' expectations for only a 0.1 percent drop and implied a slower pace of consumer spending at the end of 2014.

%VIRTUAL-pullquote-This isn't the start of a collapse in activity as that doesn't fit with the strength of employment growth and consumer confidence.%Still, economists saw the decline as temporary, citing a strengthening labor market and lower gasoline prices.

"This isn't the start of a collapse in activity as that doesn't fit with the strength of employment growth and consumer confidence. Retail sales will strengthen again before too long," said Paul Diggle, an economist at Capital Economics in London.

Economists at BNP Paribas in New York blamed the decline on difficulties adjusting the numbers for seasonal fluctuations in December because of volatility in holiday spending.

Other economists said consumers were saving the extra income from lower gasoline prices.

Excluding automobiles, gasoline, building materials and food services, sales fell 0.4 percent last month after a 0.6 percent rise in November.

Economists had expected the so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, to rise 0.4 percent last month. Consumer spending accounts for more than two-thirds of U.S. economic activity.

Growth Estimates Cut

December's surprise decline prompted economists to lower their estimates for consumer spending in the final three months of 2014 as well as growth forecasts for the quarter, which had been sharply raised following last week's reports showing a smaller November trade deficit and larger wholesale inventories.

A second report from the Commerce Department showed retail inventories excluding automobiles barely rose in November.

%VIRTUAL-WSSCourseInline-876%December's weak retail sales saw traders cut bets on an anticipated June interest rate increase from the Federal Reserve.

The data combined with concern over the global economy to push U.S. stocks down. Prices for U.S. government debt rose, while the dollar fell against a basket of currencies.

Retail sales were weighed down by declines in receipts at electronic and appliance, clothing, building materials and garden equipment stores, as well as auto dealerships.

Online sales also fell as did receipts at sporting goods stores. Lower gasoline prices weighed on service station sales, with receipts falling 6.5 percent -- the biggest decline since December 2008.

Receipts at furniture stores and restaurants and bars rose.

In a separate report, the Labor Department said import prices fell 2.5 percent last month as the cost of energy plummeted. It was the largest decline since December 2008 and followed a 1.8 percent drop in November.

The weak import prices pointed to subdued inflation pressures over the coming months.