Retail sales fell 1.9 percent in December

Retail sales dropped in December after four straight months of increases, according to data released Friday by the Commerce Department.

U.S. retailers and restaurants made $626.8 billion in sales last month, falling 1.9 percent from November’s total of $639.1 billion. Economists expected sales to stay flat in December and rise 0.2 percent without counting automobile purchases.

Instead, sales fell broadly across sectors in December as consumers waded through rising prices and surging COVID-19 cases driven by the omicron variant. A rush of early holiday shopping in October may have also pulled some sales from December earlier into the year.

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"While there’s not much to like about the December report, the October and November results were so strong that fourth-quarter retail sales were still up an impressive 17.1% year-over-year," said Ted Rossman, senior industry analyst at Bankrate.

"The big question is where we go from here. Especially if inflation is taking a toll and pent-up demand is waning, the typical seasonal pattern won’t be much help the next few months," he said.

Sales by nonstore retailers fell 8.7 percent in December from November, marking the sharpest drop of any sector last month. Furniture and home goods stores saw sales drop by 5.5 percent, sporting goods and hobby stores lost 4.3 percent of their November revenue, and clothing and accessory sales fell off by 3.1 percent.

Restaurant and bar sales declined by 0.8 percent after rising 0.6 percent in November, and grocery store sales also fell 0.7 percent. Only building and construction goods stores, health and personal care stores and miscellaneous retailers saw sales rise in December.

"By spring, the optimistic view is that the COVID situation will be better and consumers will be eager to resume more activities. But there could be a period of winter hibernation before we get there," Rossman said.

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The decline in retail sales could be a warning sign for the strength of the recovery from the pandemic, which had roared through most of 2021 despite new variants and rising prices. Consumer prices rose 7 percent and prices charged by producers rose almost 10 percent in 2021, according to Labor Department data released this week.

Prices rose sharply through much of 2021 as pandemic-hobbled manufacturers, suppliers, retailers and shipping companies struggled to keep up with booming consumer demand. The decline in retail sales could reduce pressure on prices, particularly for goods in short supply and high demand for much of the year.

The Federal Reserve is poised to hike interest rates as soon as March in a bid to ease pressure on prices, and may raise rates up to four times next year. Even so, a prolonged slowdown in consumer spending could slow inflation enough to shift the Fed's plans.

"While the overall level of retail sales is high and remains strong, the December blip is likely influenced by consumers buying early, fearing well published reports of supply shortages and delivery concerns and the inability of retailers to deliver goods timely for Christmas. Either way, retail sales numbers of this variety call into the question the reality of four rates hikes in 2022," said Jamie Cox, managing partner for Harris Financial Group.

--Updated at 9:29 a.m.