Why I’m Not in Panic Just Yet over the “Dreadful” Retail Sales that “Fell Most Since 2009,” But Nervously Look at the Trend

Consumer exuberance maxed out last summer and has since changed direction.

The headlines today were all about retail sales that “fell most since 2009,” or as the WSJ put it, “at Fastest Pace since 2009,” or as CNBC put it, “so bad it’s either suspect data or a recession warning.” So let’s see.

  • Total retail sales, including food services sales such as at restaurants, rose 2.3% in December from December 2017.
  • For the year 2018, retails sales rose 5.0% to $6.04 trillion.
  • Excluding sales at gas stations, retail sales in December rose 2.5% from a year ago.
  • Retail sales without food services rose 2.1% year-over-year in December.

So what was all the hand-wringing in the headlines about? That drop-off at the end of the line (circled in red):

These drop-offs are common in retail sales, as you can see in the chart. They just don’t normally happen in December. Retail sales are very seasonal, and so the seasonal adjustments are huge, and the figures are only as good as the seasonal adjustments.

Also, today’s data pile was the “advance estimate” of retail sales. The Commerce Department will revise it, and these revisions can be fairly large, in either direction.

So why did the media go into panic mode?

The reason for the panic was the monthly decline in sales, seasonally adjusted, from November to December:

  • Total retail sales -1.2% from November to December
  • Retail without food services -1.3% from November to December.

On a “not seasonally adjusted” basis, sales in December rose 8.6% from November. But this increase was lower than the NSA increase a year earlier of 12.2%. December, the peak of holiday shopping season, was the peak in 2018 as well, but that peak might not have been so hot.

Growth in retail sales on a year-over-year basis maxed out in July and August at a blistering 6.6% and 6.3% respectively. This growth rate has since declined, and in December was 2.3%. In the chart below, note the trend of declining growth since last summer. This trend takes year-over-year growth rates to the lower range of the post-Financial Crisis period.

While stores in most major categories booked year-over year sales increases, there were some that even on a year-over-year basis, booked a drop in sales:

  • At sporting goods, hobby, musical instrument, and book stores: -13.0%
  • At department stores, a category whose sales have plunged for 17 years: -2.8%
  • At furniture stores: -0.2%

Some blamed the government shutdown’s effect on consumers who work for the government, but the actual paychecks didn’t stop coming until January. So if this had an impact in December, I dread to see its impact in January. But I doubt that the impact was significant in December, and that we can blame what happened in December on the government shutdown.

Whether or not the month-to-month sales decline in December was a fluke, or bad data, or a huge red flag, the problem is the trend: a decline in year-over-year growth rates from the peak last summer back to the lower range of year-over-year growth rates in the post-Financial Crisis period, as shown in the chart above.

Clearly, the exuberance of consumers maxed out last summer and is now returning to lower levels.

Looking at the chart above, the year-over-year growth rates change sharply all the time, and what I’m seeing in the chart doesn’t make me panic yet, but it makes me nervous.

What will make me panic is if year-over-year growth rates in retail sales break out through the bottom of the range and drop below 2% or worse, below 1%.

Inflation and population growth currently combined amount to over 2.5%. This is a figure to keep in mind when year-over-year retail sales growth drops below that rate: Meaning that at that moment – and we’re at that moment now – adjusted for inflation, per-capita year-over-year retail sales growth may be actually turning negative. If this gets confirmed over the next few months and morphs into a more enduring trend, where individual consumers across the US on average cut back, it’s panic mode.

“A development that is surprising during a strong economy and labor market”: New York Fed. Read…  Subprime Arrives: Auto-Loan Delinquencies Spike to Great Recession Levels

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  56 comments for “Why I’m Not in Panic Just Yet over the “Dreadful” Retail Sales that “Fell Most Since 2009,” But Nervously Look at the Trend

  1. Paulo says:

    regarding: “At sporting goods, hobby, musical instrument, and book stores: -13.0%”

    sporting goods and sport participation fees are totally discretionary

    musical instruments? Band kids can rent, other purchases can be delayed, or buy used for cash

    book store? I go to the library. Others use e-readers.

    When my music teacher daughter was struggling she sold her flute, etc. Now that she is doing okay she adds to her ‘fleet’, plus we all go in together at gift time.

    My son needs some new couches and I am trying to talk him into Habitat Restore reconditioned. He’s resisting.:-)

    I accept my opinion is worn out, but how much stuff do people really need? 20% of what we buy? 50%? I look for these trends to continue.


    • Bruce Turton says:

      From one Canuck to another: my kids know that my favourite word of derision is “stuff”. My spouse has a houseful, with more to come. Me, I would like to put up a clothes line on the back deck and face the panic of our condo “officials” who would much rather I use electricity and $$.

    • BrianC says:

      My house is mostly furnished with furniture from Good Will. Which means none of the chairs around our dining table match. They do, however, have character… Frame for the futon came from Craigslist, which as folks know is a place where other people store things for you. My living room chairs came from my folks estate, because my brother and sister chose not to take them. lol

    • polecat says:

      I bought an upright cabinet (solid oak & oak veneer) at a local ‘repurpose items’ non-profit … for $10.00. After kicking in approx. $200.00 in paint (purchased from Restore) assorted material on hand, and new glass for the top doors, polecat now has a showroom/boutique kitchen furniture item that would probably sell for close to $500.00 retail. So, with a bit of time, some elbowgrease, and ingenuity, our household has a new-old family heirloom … not some fallapart particleboard imported junk !
      This is but one of several in the ‘re-making’ of the ‘repurposed’.

  2. David Dodd says:

    I think what really needs to be factored in going forward is the tax return issue. If retail sales are already dropping it can get worse, obviously.
    The average return will be down this year. Per the news last night 30 million people or families that got a return this year will be paying taxes instead.
    When the average person on the street figures this out retail sales will be affected.

    • The MSM expert reported that refunds are down because workers backed off withholding. I don’t know if anticipated tax cuts didn’t materialize, if working class families misunderstood Prez, or maybe they owe because they had such a fantastically good year.

      • David Calder says:

        I didn’t back off on withholding, it was done without my knowledge. I asked my accountant why was less coming out and the answer was Trump’s tax cut. According to some reports, (New York Intelligencer for one) the IRS was pressured to take out less in withholdings. If the GOP plan was to make it seem folks were really getting a big tax break in time for the midterms it backfired and if those same folks were expecting about the same return as usual it will backfire spectacularly especially if they are amongst the millions who are unexpectedly paying the IRS.

      • alex in san jose AKA digital Detroit says:

        Did that many workers really go in and change their withholding, and then completely forget they did it?

        I think not; apparently the withholding was changed *for* them, and they were told their paychecks were bigger because their taxes were “less”.

        Yes, they should have checked with their employers, yes they should have done a lot of things like not drink and vote, but here we are.

    • Dave says:

      I’m middle class, married, own a home, have two small children and live in New York, so my family represents the segment of the population targeted by Republicans to pay for the corporate tax cuts. We are going to get destroyed this year. I wonder how many other families will forgoe home improvements, upgraded vehicle, or whatever other purchases this year because the tax reform raised taxes on so many people in our situation by abruptly taxing our taxes with no phase out or notice for the first time since the the inception of the Federal
      income Tax Code in 1913.

  3. Tom says:

    All of my Christmas shopping is now done in November. I have to order online in November to be sure to receive it by Christmas.

    So my personal spending rises in November and drops in December, maybe I’m not the only one!

    • C says:

      Good point. Black Friday is still in November, and larger retailers have started selling on Turkey Day. Amazon started their holiday sales in November.

      I’d like to know if prices have been dropping and the market more competitive for the holiday dollars. I certainly spent more money but on more, lower priced hobby boardgames, in part because of Amazon’s entry into the market and pressure by suppliers to give them a larger discount.

    • The Admiral says:

      Probably multiple influences on this issue.

      If you track the percentage of Christmas online shopping increases, and then add to that, how many folks have mixed results from waiting too close to Christmas to order items shipped for Christmas, it most certainly has some percentage of online shoppers “trending” towards earlier purchases.

      The earlier online Christmas shopping takes place, the more “in stock” choices and good sales offers there are to be had.

      Not likely the whole story… but online shopping is a VERY powerful trend, with more and more players getting into the act every year.

  4. andrew melnick says:

    I suspect the biggest influence December was the stock market decline. Who owns the most stock–the wealthy. For the wealthy, retail spending is very discretionary. With the market decline, the wealthy probably pulled back at the margin—spent $95 instead of $100. Not a big deal, but sufficient to hold down the growth.

    • Jessy S says:

      And it is very easy to not spend when it comes to this economy. For example, the rich, but not so rich, are likely waiting like vultures for the Neiman Marcus nationwide going out of business sale. Personally, I do have a LEGO Bricklink store and that seen its last sale right before Christmas. You would think that spending would slightly be on the increase post Christmas, at least with discretionary spending. BTW, my bricklink store link is in my name and feel free to visit.

  5. akiddy111 says:

    Also, there may be some weakness in Restaurant sales. Down 4 out of the last 5 months. Not sure if meal kit delivery impacts this trend somehow.

    And Euro zone Industrial Production is looking weakest since early 2016.

  6. Eureka says:

    People are finally working as a greater portion of the population since most of us can remember unless we are old folks. It isnt great pay but it is what it is. (Im woikin heea) LOL This new gen gets home tired and make a quick dinner/supper and then binge on Netflix, Hulu, Amazon, You tube, cable tv or maybe some other stuff they find before crashing to start over. I gave 4 hand me down cars that were received with a plethora of “thanks this is perfect” even with over 100k on each and most ran to about 180k with no more than 3k invested before they went belly up with a big expense. On the weekends they figure ways out not to spend money. Couldn’t care less about about spending time to mess around with shopping if they can help it. Also takes time to set up a new household or afford stuff like furniture or even create a new culture that will start spending etc etc. My 3 boomerangs left late and bounced back at least 2 times each since 2005 and my 4 bed Mcmansion house is finally about to become a permanently empty nest so i can turn off or put the second floor ac system into minimum settings. Now I have to figure out what to do with this way over the top Executive home with private entrance office that I really should never have needed at my age. These mid life newbs are finally singing the right songs, yo eee ooo yoooo oh……… yo eee ooo yoooo oh. or maybe ( I load 15 gigs and what do i get…. a little entertainment and deeper in debt ……..I owe my soul to the vi de o. LOL

  7. Nik says:

    Wolf..read your articles consistently. Hate to put it so simplistically..the US-Economy (severely) and to a limited extent the EC as well as the rest of the World’s Economies are Bifurcated…between the ‘Have’s’ and ‘Have-not’s.’The Deliquesces in Higher credit-risk Auto buyers,just puts icing on that Cake (yes you warned about..it…lolol) Debt needs to be serviced,and the Have-nots in America,are consistently having trouble ‘paying the Piper’ thanks for your time.

  8. aqualech says:

    I think this hype is just more attempted pressure from WallStreet on the fed to stop tightening.

    • Winston says:

      Doubt that and the figures are still inflated way above the truth.
      Business people across the US in varied fields are all telling me that sales
      dropped off a cliff late November.They still haven’t improved, and one who has real time logistics insight is saying its not isolated pockets, its across
      the board.This is just the start of the bad news.

    • MC01 says:

      Each time there’s a slight dip anywhere or growth doesn’t proceed as smoothly and fast as wanted the media are flooded with what I call “corporate sob stories”, meaning thinly veiled demands for more subsidies, more tax breaks, lower interest rates etc.
      True fundamentals, not to mention how much money has been made so far, don’t matter: all it matters is getting politicians involved.

      I was five or six when I first heard my grandfather and his farmer pal (both were doing rather well for themselves at the time) discuss on how to get the most subsidies and tax breaks. Tales of (often much exaggerated) hardships were seen as one of the best ways to get the process into motion and the media could always be counted upon to lend a hand.
      Many years later I was briefly involved in politics and let’s just say my already well developed cynicism went completely off the scale where it has resided ever since.

      When I hear a corporate sob story these days I either quote Private James Frazer (“We’re doomed! Doomed!”) or sing a line from Black Moon by Cellar Darling (“It’s the end, the end, the end”) because it seems if the trough is not overflowing some terrible catastrophe will befell us.

  9. Frugal in the Bay says:

    We most millennials that is feel poor with rising rents, healthcare, etc. We spent less this year for the Holidays (did all our shopping in November for Black Friday). Maybe other people are like us.

    My husband’s company told them they were projecting recession by 2020, so to expect lower bonuses next year. We’re squirreling away funds for the coming winter.

    • alex in san jose AKA digital Detroit says:

      I’m trying to save all I can too. In 8 years I can retire since I’ll be 65, and I’m just saving what I can and planning for that time. As little spending as possible is the rule, and trying to own as few things as possible.

  10. Rick says:

    I’m not in a panic bc stock prices are set by central bank programs, not retail sales, nor economic data, nor company performance. With a global economy 100% dependant on asset price appreciation, US stock indexes will go up over time bc they HAVE to go up. Every Government budget, 401k, pension, ira, mutual fund, 529, college endowment REQUIRE them too. Why else do you think every morning drop in US indexes is reversed intraday. Today is just another textbook example of how stocks aren’t allowed to go down.

    • Eureka says:

      yes and there is an adviser that said some big tsunami of money is about to hit the stock market from corporations and banks not from the public. so agreed but only until that runs out sometime 2021 or 22

      • JZ says:

        The turkey goes to its master everyday and get food. “He HAS TO feed me! Otherwise I am NOT growing!” That just keeps going endlessly until thanks giving.

        • mudturtle says:

          Good analogy, but what about pet cats? They live in the luxury life and produce nothing but dirty litter boxes.
          My next life will have chickens and turkeys for temp pets.

  11. Rick says:

    I think it’s pretty clear that global economies cannot function any longer without continuous stimulus. QE is here to stay. QE forever. The Fed unwind is nothing but a dog and pony show. Members are already coming out saying that it should end this year, after barely beginning.

    • Bobber says:

      There is no possibility of continuous stimulus. It’s a delusion.

      When you stimulate, you rob growth from the future. You rack up debt. You create record-breaking wealth concentration.

      At some point, it backfires as defaults, revolts, and/or inflation. Whatever stimulus went in, ultimately must come out.

      • Escierto says:

        It’s been working great for Japan for 30 years. Their central bank buys everything. They print trillions of yen and it’s still a safe haven currency. So yes, MMT seems to work great.

    • JZ says:

      Rick, when everybody knows QE, ZIRP and draws conclusion that “they” HAVE to do it because of defacit and debt level, I am scared.

  12. nick kelly says:

    I think drug sales should be backed out of retail as they are the opposite of discretionary and do not measure confidence etc.

  13. Jack says:

    Love your commentaries, Wolf. Especially re: cars, the economy, etc. The last several days have really interesting and give many folks things to think about and comment on.
    I am not a snob, actually I am just a very old man, but I wish that those who DO comment on your website re-read what they have just written so it doesn’t read like gobblygook before they hit send.

  14. Inflation started to tick down a couple months ago, the Fed came late to the party, backed off its rate hikes, and now the lagging indicator slams the door.

  15. Bing Wong says:


    “Inflation and population growth currently combined amount to over 2.5%. This is a figure to keep in mind when year-over-year retail sales growth drops below that rate:”

    What’s the significance of adding inflation and population growth rates (=2.5%) and comparing that w/ retail sales growth? I’ve seen that comparison made before but could never understand why they did that?

    • Wolf Richter says:

      “real pre-capita” sales growth: are individuals buying more or less in real terms.

      • Dale says:

        Real, per capita, year-over-year is the way to do it.
        It will be interesting to see what happens with PCE. Retail sales often nose-dives, it requires PCE to make a recession (historically).

        • Dale says:

          December’s PCE numbers aren’t in yet, but real per-capita PCE was still up 1.86% YoY as of November.

          PCE is less erratic than retail sales, since it includes less-discretionary stuff. What’s interesting is that it still has gone up by about 30% in the since 2000, when real wages weren’t that much lower.

          This graph shows real, per-capita PCE in current dollars (early 2019), and per-month.

  16. Iamafan says:

    Take a look at the record level of non-competitive and Treasury Direct at today’s 28-day auction. Must be a lot of people deleveraging and saving money.

    • PinotNoir says:

      Can you provide a link showing the noncompetetive tender at these auctions over time? As a small investor who has been buying some of these 28 day bonds from TD the past few weeks I’m curious to put this “record” into perspective. Thanks!

  17. Justme says:

    I think it is time to revisit an excellent article from about a year ago. The original article was about how Wall Street have been able to buy non-performing loans from Fanniemae and Freddiemac for 60 cents on the dollar. This is still going on, with the most recent auction taking place in Oct 2018. Retail customers looking for a house of course are excluded for all practical purposes, because any investor must have a net worth of 10M (some cases 5M), and the size of the loan packages sold are in the high 100s of millions range (say $700M).

    But there is another angle to this scheme that I wanted to talk about: Are Fannie and Freddie (FaF) using NPL sales as a means to paint a rosy picture of low delinquency and foreclosure rates? When FaF report their monthly delinquency rates, do they report only for the mortgages that they are still holding themselves? Other blogs like Calcultated Risk graph the delinquency numbers each month, and are crowing about how low they are. Are the numbers really true, or do they not include the NPL loans sold off?

    Reference: https://wolfstreet.com/2018/01/26/why-is-fannie-mae-offering-goldman-sachs-et-al-such-fat-margins-on-defaulted-mortgages/

    • Justme says:

      By the way, here is a link to the Fanniemae MPL auction information site. The link is also the comment section of the above referred article.


    • Iamafan says:

      I assume once these NPL mortgages ate sold then it’s off FandF’s books. It’s for the new owner to figure out what to do with it.

      I need to ask a similar question with the Fed’s SOMA reinvestments. Wolf, when Treasuries mature and the Fed reinvests, do they first unwind the excess reserves of the banks, then book a new liability with the treasury?

      If they want the nature of the balance sheet to change and stop QT, can they simply let the maturity go on as planned, but do the reinvesting as treasury liabilities instead? No need to pay IOER.

    • Justme says:

      Here is a new report of a Fanniemae employee that perpetrated retail-level foreclosure fraud against her employer by selling foreclose(REO) houses below market (and below other bids) to herself and family members. This is of course a small-scale scam compared to what is likely going on with the big billion dollar NPL auctions mentioned earlier.


  18. Dis says:

    Doubt anything gets a reaction unless:

    (i) SP500 dips more than 10%; and/or

    (ii) tax revenue shows a significant decline Y-o-Y – not sure how to quantify that %

  19. Keeper Hill says:

    There is no sugar coating these numbers. They were dreadful.

  20. yngso says:

    The trend has been bad for years already. Discounting BEFORE Christmas never happened ubtil a few years ago. When then sales also drop, ouch!

    • Cashboy says:

      Sales is vanity and Profit is sanity.
      It will be interesting to see what the profitability of retailers is in the coming months.
      Here in the UK, companies are using the excuse of the uncertainty of Brexit as an excuse for lack of profit or shutting down and moving manufacture to cheaper labour countries in the EC.

  21. Hugs says:

    (so far) No one has mentioned the SALT deduction being capped. No one has mentioned the increased migration of the middle class out of dysfunctional cities. Someone in a sanctuary city sees migration caravan pictures on the internet…thinks that is their new neighbors. Moving makes people realize how much stuff they don’t need. Going to load up on more stuff before moving?

    • weinerdog43 says:

      “No one has mentioned the increased migration of the middle class out of dysfunctional cities.”

      Because there is zero empirical evidence of that.

  22. TruckMan says:

    Other than the obvious lack of money, the other possible reasons for declining spending, from personal experience, are:
    1) Functionality and reliability. The quality of goods out of China continues to drop. Even the older products are going out under the same label but with lower quality internals. Many goods are simply not worth buying at any price. I noticed in the Christmas sales that the stacks of second-rate bargains used to fill demand after the choicest bargains had gone were simply not selling. If people couldn’t get the quality goods bargain, they simply left. It was a nightmare for the logistics guys (I chatted to one), since they had pallets arriving hourly but few goods going out the door. They were having to store pallets in the aisles.
    2) Cost vs value. I built my last kitchen with IKEA doors and hardware but built my own cabinets to their spec. The cost of the kitchen was half price, including the tools I needed. And I now have a tablesaw, drill press, dowel jig, etc to build more furniture. I estimate I would have to earn $60 per hour, before tax, to pay people to do what I now do myself.
    3) Concern for the future. Several friends of mine are now seriously concerned about their jobs in the coming downturn, and are saving rather than spending as a result.
    Personally, I am most concerned about point 2). If it does not pay oneself to do what one is best at and pay others to do what they do best, but instead do everything oneself, then this is the end of civilization historically-speaking, since the profit in specializing was how cities arose in the first place.

  23. Cashboy says:

    In the UK, I am informed that 20% of all goods bought for Xmas online are returned. That would hit January 2019.
    The question is; do the online sales figures for December 2018 provide for this or will this hit January 2019 sales figures.

    • Wolf Richter says:

      Returns are booked in the month in which they occur. “Seasonal adjustments” of the retail sales data estimate this and account for it. But if you look at not-seasonally adjusted sales in the US, you see a drop from December to January of about 20% to 25%. That’s totally normal and happens every year.

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