Retail Sales 2014: Consumer Spending Drops During Holiday Shopping Season Despite Low Gas Prices

Following anecdotal mixed reviews of initial holiday sales, Wednesday's hard data revealed that U.S. retail spending fell in December despite a steep drop in gasoline prices across America. Economists view retail sales as a key economic indicator since consumer spending accounts for nearly two-thirds of the U.S. economy.

U.S. retail sales for December fell to $442.9 billion, a decrease of 0.9 percent from the previous month, but retail sales increased 3.2 percent from December 2013. Excluding volatile items such as automobiles and gasoline, which economists omit for a better gauge on consumer spending, retail sales fell 0.4 percent last month after a 0.6 percent rise in November, the Commerce Department said Wednesday. Retail sales from October to November were revised down from a 0.7 percent increase to a 0.4 percent rise.

Economists had expected December retail sales to decline 0.10 percent after initially rising 0.7 percent in November, according to Reuters data. The surprise was that, even stripping out gasoline, autos and building materials, sales fell by 0.4 percent month over month.

“Contrary to expectations, shoppers didn’t take advantage of the boost to real incomes from lower gasoline prices to head out in force at the end of the holiday shopping season,” Paul Diggle, economist at Capital Economics, said in a research note Wednesday.

Global oil prices peaked at $115 per barrel in June and were down to $64 per barrel in December. And the price of U.S. crude oil was down to $60 per barrel in December, a five-year low, which helped send the average price of gasoline down to $2.63 per gallon across America, according to Gasbuddy.com.

Although retail sales data last month showed that U.S. consumers picked up spending in November, boosted by a drop in gasoline prices, retail sales fell short of expectations in December during the Christmas holiday shopping season.

Spending on electronic items fell by 1.6 percent in December from November, while spending on general merchandise fell by 0.9 percent month-over-month. Another surprise was that online retailers “didn’t buck the trend,” according to Diggle, with the value of nonstore sales falling by 0.3 percent in December from the previous month.

Initial retail sales over Thanksgiving weekend painted a mixed picture for the U.S. economy after overall shopper traffic from Thanksgiving Day through Sunday, Nov. 30 dropped 5.2 percent from 2013, according to the National Retail Federation’s Thanksgiving Weekend Spending Survey.