Retail sales tank in December. Are things getting that bad this fast?

Because the federal government has been opened for the last 3 weeks, it means the sizable backlog of economic data from the end of 2018 and early 2019 is finally coming out. And the report on retail sales for the important month of December was a shocker.

Advance estimates of U.S. retail and food services sales for December 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $505.8 billion, a decrease of 1.2 percent (±0.5 percent) from the previous month, but 2.3 percent (±0.5 percent) above December 2017. Total sales for the 12 months of 2018 were up 5.0 percent (±1.4 percent) from 2017. Total sales for the October 2018 through December 2018 period were up 3.7 percent (±0.5 percent) from the same period a year ago. The October 2018 to November 2018 percent change was revised from up 0.2 percent (±0.5 percent)* to up 0.1 percent (±0.4 percent)*.

Retail trade sales were down 1.3 percent (±0.5 percent) from November 2018, but 2.1 percent (±0.5 percent) above last year. Clothing and clothing accessories stores were up 4.7 percent (±1.4 percent) from December 2017, while food services and drinking places were up 4.0 percent (±2.5 percent) from last year.

That’s the worst 1-month drop in retail sales since September 2009, and along with a reported decline in inventories, caused the Federal Reserve of Atlanta to tank its projections for 4th Quarter GDP growth, all the way down to 1.5%.

The drop in retail sales was wide-ranging, and contradicted information from credit card companies and retail studies who said the Christmas shopping season was a great one. The huge decline was such a surprise some economists literally refused to believe it.

The weakness was broad-based. Sporting goods stores sales fell 4.9%, miscellaneous store retailers fell 4.1%, non-store retailers — which includes online retailers — dropped 3.9%, department stores fell 3.3%, and health & personal care stores fell 2.0%.

Economists said that the decline in the “official” Census Bureau figures is easily explained in the context of broader financial market volatility and uncertainty over a partial government shutdown, which saw about 800,000 federal employees either furloughed or working without pay. Both of these factors had also contributed to weaker readings for consumer sentiment, with a reading from January capturing the residual impact of December’s market performance and government shutdown registering at the lowest level since October 2016…

The largest drop in headline retail sales was especially surprising given that previously released data from other institutions had suggested that retail sales had risen for the month. According to a Mastercard SpendingPulse study released at the end of December, the holiday shopping season had been the best in six years. A Johnson Redbook report, likewise, showed that December sales rose over last year, though the firm draws results from a smaller sample.

The release of the Census Bureau’s retail sales figures – along with a host of other economic data – was delayed due to the government shutdown.

The Census Bureau’s retail sales numbers “are astonishing, and impossible to square with the Redbook chainstore sales survey, which reported surging sales in December and a record high in the week of Christmas, on the back of the plunge in gasoline prices,” Ian Shepherdson of Pantheon Macroeconomics wrote in an email Thursday.

And it may well be that the bad December numbers reflect a seasonal adjustment that counts on Christmas shopping being heavily concentrated in December - the amount of money spent in retail went up 8.7% in December vs November, but that’s less than “normal”, so it registered as a big loss. However, it doesn’t explain the lousy year-over-year figures that include what was happening in December 2017 (the raw sales for Dec 2018 were only up 1.4%, below the rate of inflation).

But wait, Trump economic advisor Larry Kudlow says that there’s a legitimate reason for the decline.

National Economic Council Director Larry Kudlow played down the weak December retail sales report, which showed the biggest monthly drop in nine years. Speaking from the White House, Kudlow noted the impact of 10 days of a government shutdown as well as shoppers procrastinating on holiday purchases. "Shoppers were very late, according to the National Retail Federation," he added. "I wouldn't be surprised if January was revised up because of that."

Koch/coke makes you say stupid things.

So Kudlow is saying that Americans were waiting until January to do their Christmas shopping. WHAT?????

It's an additionally stupid take because the shutdown didn’t happen until the Saturday before Christmas, and no one missed paychecks until the start of 2019. If there’s a shutdown-induced loss of retail spending, you’d think it would show up in January not December. Even by that dimwit’s low standards, this a lame excuse.

There was also a national report this week which indicated that consumer debt kept going up at the end of 2018, which makes you wonder how soon a breaking point is reached.

The U.S. household debt and credit report, published Tuesday by the Federal Reserve Bank of New York, showed that the overall debt shouldered by Americans edged up to a record $13.5 trillion in the fourth quarter of 2018. It has risen consistently since 2013, when debt bottomed out after the last recession.

While mortgage debt, by far the largest slice, slipped for the first time in two years, other forms of borrowing rose including that of credit cards, which at $870 billion matched its pre-crisis peak in 2008…

Another signal of weaker demand, the closing of credit cards and other accounts, jumped to its highest level since 2010, while flows into serious delinquency for credit cards rose 5 percent, up from 4.8 percent in the third quarter.

Serious-delinquency flows, a warning bell for economists because they can prelude defaults, spiked in the third quarter for student debt and remained there in the fourth quarter, with 9.1 percent of the $1.5-trillion total debt seriously delinquent.

These flows have also been rising since 2012 for auto loans, which rose slightly to total $1.3 trillion by the end of 2018, a year that had the highest number of auto loan originations since at least 1999.

And the Fed added that “subprime” borrowers are a big reason for the worsening state of car loans, which sure gives off echoes of the mid-2000s in bad ways.

That being said, the Bureau of Labor Statistics said this week that real wage growth increased again in January as gas prices and other inflation bottomed out, so there shouldn’t be headwinds from that standpoint. However, I’d think a large number of people finding out that they’re going to be sending checks to the IRS instead of getting a refund will have some kind of effect on the consumer economy in the next few months.

These realities are why I’m not trusting the recently melting-up stock market. The horrid retail sales figures and the worrysome debt numbers also shows that the economy on Main Streeters might be very different than what’s happening for Wall Streeters, and I don’t like how those situations often resolve themselves.