BUSINESS

December retail sales drop an unexpected 0.9% as consumers use caution

Retail sales drop 0.9% in December

Retail sales took an unexpected dip in December, a signal that shoppers kept a tight watch on their holiday spending despite a boost from falling gas prices and a better job market.

In December, retail sales dropped 0.9% to $442.9 billion, the largest fall since January 2014, the Commerce Department said Wednesday. The boost in spending from October to November was also revised downward to 0.4% from 0.7%.

When stripped of the volatile gas, autos, building and food services sectors, retail sales fell 0.4% in December after rising 0.6% in November. 

The sober report indicates that U.S. shoppers remain cautious as slow wage growth tempered other signs of a rebounding economy. Average hourly pay climbed a slight 1.7% last year, and slipped 0.2% in December, the government said last week. 

"Data on average hourly wages was very disappointing." Jack Kleinhenz, chief economist of the National Retail Federation, said after the wage data was released. "While the labor market has recovered from recessionary lows, it's still not strong enough to generate or pressure wage increases."

Retail sales in December can be a crucial barometer of consumer sentiment, especially during the make-or-break holiday season when retailers can make up to 40% of their annual sales. Economists keep a close eye on consumer spending because it makes up some 70% of U.S. economic activity.

Several categories usually popular during the holidays recorded a decline.

Electronics and appliance stores, which got a boost in November from Black Friday, showed a 1.6% drop in December. General merchandise stores reported a 0.9% decline, while department store sales slipped 0.2%.

Consumers spent 0.3% less on clothing and accessories shops, while spending also fell 1.9% on building materials and garden supplies. In all, nine out of 13 categories suffered a drop. 

That's despite falling gas prices that sent gas stations sales falling 6.5% last month. Consumers are paying roughly $1 less for a gallon of regular gas compared to a year earlier, and California motorists closed out 2014 enjoying the lowest pump prices in more than five years. 

With the holiday season now in the rear-view mirror, some experts are anticipating a large number of seasonal retail workers are going back on the job hunt again. 

Retailers hired about 603,200 employees in November and December, down 4% compared to the same period in 2013, according to a report from consulting firm Challenger, Gray & Christmas Inc. Now some retailers are ready to trim temporary and full-time employees from their payrolls. 

"The challenges that some retailers faced over the holidays are having negative consequences as the new year begins," the report said. 

This month, Macy's said it was closing 14 stores, including two in Woodland Hills, and could lay off up to 2,200 workers. J.C. Penney is shuttering about 40 locations and cutting 2,250 employees from its staff. And struggling teen retailer Wet Seal is set to lay off nearly 3,700 employees and close 338 under-performing stores. 

Follow Shan Li on Twitter @ByShanLi

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