NEW YORK (AP) – Americans overlooked shortages, spiking prices and uncertainty over the Omicron variant to break spending records during the critical holiday shopping season. But figures released on Friday show that after spending robustly early in the holiday season, consumers sharply slowed their purchases from November to December.
The National Retail Federation, the nation’s largest retail trade group, said that sales surged by a record 14.1 per cent from November and December 2020 to the same months in 2021. Those figures blew away the federation’s projections for growth of between 8.5 per cent to 10.5 per cent, and more than tripled the average gain over the past five years of 4.4 per cent.
“After a dispiriting holiday season in 2020, most shoppers were absolutely determined to enjoy themselves come what may,” said Managing Director of GlobalData Neil Saunders.
Yet data issued by the Commerce Department showed that by the end of December, spending had trailed off sharply enough to catch economists off guard and raise doubts about the sustainability of retail sales in the face of Omicron, inflation and persistent shortages of labor and supplies. Retail sales fell a seasonally adjusted 1.9 per cent from November to December.
Spending fell broadly across numerous sectors: Department store sales fell seven per cent, restaurant 0.8 per cent and online purchases 8.7 per cent compared with November.
Many economists expect the caution that consumers displayed last month to carry over into this year and potentially slow the economy. Still, with average hourly pay rising and unemployment rate steadily dropping, analysts say spending and growth could pick up, at least modestly, once omicron fades.
“American consumers closed 2021 on a very sour note,” said Senior Economist at BMO Capital Markets Sal Guatieri.
“That said, high household savings, strong job growth, and improved confidence once the latest COVID wave crests should put consumers back on a high-spending track in the second quarter.”
Retailers warned for months that their supply chains had become snarled as the nation swiftly emerged from the pandemic recession, and they urged consumers to shop early for their holiday purchases. It appears that many Americans took heed and, in effect, moved up the usual holiday shopping period by a month or so.
Commerce Department figure show retail sales jumped 1.8 per cent in October, and on Friday it reported that year-over-year numbers show that retail sales surged 16.9 per cent last month compared with December 2020. For all of 2021, sales spiked 19.3 per cent compared with the previous year.
Some economists caution that the seasonal adjustment of retail sales has been thrown off by the pandemic. Seasonal adjustment is intended to account for the normal spike in shopping in December for the holiday season. This year, though, because many Americans started shopping so early, the seasonal adjustment might have exaggerated any December spending retreat.
Some analysts also suspect that shoppers who waited until the end of the holiday season and didn’t find what they wanted and took a pass or they bought gift cards. That spending won’t show up in retail data until those cards are redeemed.
All told, Americans appear to be spending their money differently – and spending more, not less, collectively. Mastercard SpendingPulse, which tracks all kinds of payments including cash and debit cards, reported late last month that holiday sales surged 8.5 per cent from November 1 through December 24 from a year earlier. That was the fastest such pace in 17 years.
“Consumer spending will remain the cornerstone of economic growth this year, but the near-term path will be choppy amid surging omicron cases,” said lead US economist at Oxford Economics Lydia Boussour. Boussour said she thinks that after a soft patch in the first quarter, spending should rebound in the spring on the strength of strong wage growth and savings.
Chief Economist at Amherst Pierpoint Stephen Stanley agreed, pointing to a robust job market, pent-up demand and “a mountainous pile of extra cash to spend”.
“People will spend again once the omicron wave fades,” Stanley predicted.
The Omicron variant has led to widespread worker shortages with many people calling out sick. And supply shortages have curtailed what goods make it to store shelves. Stores and restaurants have slashed operating hours or remained closed on days when they had previously been open.
This week, Lululemon warned that fourth-quarter sales and profits will likely come in at the low end of its expectations as it grapples with the variant’s fallout.
“We started the holiday season in a strong position but have since experienced several consequences of the Omicron variant, including increased capacity constraints, more limited staff availability and reduced operating hours in certain locations,” said CEO Calvin McDonald.