Retail sales sink 1.9% in December amid inflation surge, early holiday shopping

Yahoo Finance's Brad Smith discusses how U.S. retail sales declined over the holiday season due to inflation, a staff shortage, and worries about Omicron.

Video Transcript

JULIE HYMAN: And in the meantime, we've got to talk about those shocking retail sales numbers. I mean, I was shocked, at least, this morning to see that 1.9% drop month over month in retail sales versus the 10th of a percent drop that was estimated. And really, Brad Smith is covering for this-- covering this for us.

Sorry, I'm tongue-tied because I'm so surprised by these numbers. I mean, you go down the list here. Any way you break it down, you can back out cars and gas. You can look at the control group. Any way you slice it, this was a miss.

BRAD SMITH: Yeah, that's spot on, Julie. It was a huge miss this morning against the expectation in a decline of 1/10 of a percent. The US Census Bureau announced a decline of 1.9% in retail sales in the US for the month of December 2021, and that versus the expected decline that I mentioned a moment ago of 1/10 of a percent.

Ex autos, as you mentioned, that decline was 2.3%. Ex autos and gas, the decline was 2 and 1/2%. And then additionally, we saw a little bit of a revision lower in November of 2021 as well, which came in at 2/10 of a percent.

And so where did the largest decreases come in by segment? I want to break that down for a hot second. Non-store retailers, that declined by about 8.7%. You saw furniture and home furniture stores, that declined by about 5 and 1/2%.

And then additionally, on the sporting goods and the hobbies, not a ton of people buying new musical instruments, and books, and bookstores. That saw a decline of 4.3%. Here, you're taking a look at the side of your screen at the S&P 500 retail sector ETF. We're going to continue to track that throughout the day. But we've seen some declines early going into the start of today's trading session, as we're just about 20 minutes out from that.

The retail sector has been a focal point during the week. We got CPI data that revealed a 7% increase in December year over year, at least over the year prior here, the highest 12-month increase since 1982. We also saw some supplemental digital sales data that was published by a host of companies, either transactions companies, and spending pulses. Salesforce-- we spoke to them this week, revealing that prices were 25% higher compared to the 2020 holiday months of November and December.

And as we've seen these analysis and these analyses come forward from some of those card processors and online sales platforms about records, they also come with the fact that we saw a lower volume in the pace of transactions year over year. And so that's significantly lower as well as some of the headwinds that we know were navigated by many of the names in the retail sector that we track on a day-in, day-out basis, and many small businesses as well. That shaped up for what we got here in this massive decline between the two months, both November and December, in this holiday season particularly.

JULIE HYMAN: Brad, I'm still confused by these numbers, I have to say, I mean, especially since those numbers that you're talking about, which, yes, showed maybe a decline in volumes. But most of them were strong numbers-- Mastercard SpendingPulse, those Salesforce numbers that you mentioned. And Salesforce in particular was looking at digital sales, which as you mentioned fell by 8% in December.

So you have to wonder. I mean, there are a number of things that you can point the finger at here. You have to wonder, is part of it that people were heeding the calls, the alarmed calls to buy early?

Is it that people couldn't find what they wanted maybe by the time December rolled around and so didn't buy it? Is it that they were deterred by some of those higher prices? Is it some combination of all of these? I mean, it's just difficult to sort of suss out what was going on.

BRAD SMITH: Right. And if we can break it down in a few categories about where they were purchasing, when they were purchasing, and increasingly, what they were purchasing as well. And we'll start with the what, and the inventory concerns, and the constraints there that we had seen many of those retailers signal going into the holiday season. That pulls us into the when they were purchasing. And perhaps many, to your point, of the consumers were heeding the call of companies to say, if you can get the purchasing done early, do so because that will guarantee that you have products by the holiday season.

Now, what that does, it certainly puts that dampener on December, if you will. And so that kind of dovetails us into the last portion of this in where they were purchasing, whether that was online or in store. And increasingly, as we've talked about, the omnichannel approach-- and I know you had a great conversation with the JP Morgan analyst in retail yesterday just about how important that omnichannel approach is, both the combination of brick-and-mortar and digital. That was something that is noteworthy, particularly in this report, as what stands out to me in those categories that we were breaking down a moment ago, and where people may have pulled forward some of that purchasing activity to ensure that they actually had the product ready, either on the shelf, under the tree, whatever the case was, ready to be given to somebody else, perhaps over the holiday season, the season of giving.

JULIE HYMAN: And, of course, then there was Omicron as well, which we didn't even really get into, which certainly probably kept people out of the stores and kept staff from working as much in the stores.

BRAD SMITH: That's right, closures.

JULIE HYMAN: We've got to leave it there, though, right now. Brad, thank you so much. Appreciate it.