This past holiday season brought the best news for retailers since 2009, but a spending slowdown in December has retailers worried about just how strong a 2011 recovery might be. High unemployment, slow wage growth and rising costs are a formula for a slowing economy.
On Friday Commerce Department data showed that retail sales were up 0.6 percent in December, with big gains in sales of autos and furniture. Sales rose 6.6 percent for the full year. The department said the increase represents strong annual growth and the sixth consecutive monthly gain. The December numbers, however, were below expectations of 0.8 percent growth.
“Retail sales — a fundamental indicator of economic health — grew at a strong pace throughout the second half of 2010, signaling momentum in consumer spending and the overall economy,” said Gary Locke, commerce secretary, in a statement. But those cheery projections may be premature. The Labor Dept. said Friday that real average weekly earnings fell 0.4 percent last month. Department and clothing stores had sales declines in December, which could have been the result of the blizzard that kept many consumers in the Northeast away from malls and stores; or could be an indication that Americans are pulling back on their spending after holiday-focused splurges.
Unemployment remains near 10 percent, foreclosures are rising and 40 million Americans are now relying on food stamps, up 50 percent from four years ago. Food prices are also on the rise, and the average price of gasoline is now 12 cents a gallon higher than it was a year ago, putting a crimp in consumer spending. Add to that increases in raw materials and retailers are paying more for finished goods and, when possible, passing those costs on to consumers.
Greg Smith (his last name changed at his request for privacy), a 32-year-old event planner, has been out of work for more than 99 weeks and is no longer receiving unemployment benefits. The New Yorker says he’s not spending the way he once did. “I had already been pinching pennies just to buy small Christmas gifts,” he said. “Right now, if I'm not eating it, I'm not buying it, and even food costs are causing me to cut back and buy a poorer quality of food. Recreation or luxury items are just out of the question.”
Related Links:
Binge and Purge Cycle in Retail Sales? (Wall Street Journal)
Auto, Furniture, Give Retail Sales Steady Gains (St. Louis Today)
