Retail sales took an unexpected slip in December, a signal that shoppers kept a tight watch on their holiday spending despite a boost from falling gasoline 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 increase in spending from October to November was also revised downward to 0.4% from 0.7%.
When stripped of the volatile gasoline, autos, building and food services sectors, retail sales fell 0.4% in December after rising 0.6% in November.
"This is a reminder that the U.S. economy is not as strong as people thought it was," said Sung Won Sohn, an economist at Cal State Channel Islands. "In this case, consumers were saying, 'Wait a minute, let's hold back.'"
The sober report, economists say, points to a problem still plaguing many American consumers despite positive signs of a rebounding economy: stagnant wages. Average hourly pay climbed only 1.7% last year, and slipped 0.2% in December, the government said last week.
"Rising costs … including healthcare and low earnings growth, have stunted sales at year-end," said Lindsey Piegza, chief economist at Sterne Agee. Less-than-robust consumer spending could also portend "trouble" for economic growth overall at the end of 2014 and in early 2015, she said.
Retail sales in December can be a crucial barometer of consumer sentiment, especially during the make-or-break holiday season when retailers can rake in 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.
U.S. stocks fell Wednesday as the surprising retail news and another decline in oil prices fed concerns about economic strength.
A day of volatile trading pushed the Standard & Poor's 500 index as low as 1,988.44; it closed at 2,011.27, down 11.76 points, or 0.6%. The Dow Jones industrial average, which at one point plunged nearly 350 points, fell 186.59 points, or 1.1%, to 17,427.09.
Some analysts pointed out that other factors also contributed to the poor retail showing in December, including a stretched-out shopping season that started in early November and ends in January. Many retailers began kicking off Black Friday deals a week before the actual day, and post-Christmas sales have also been extended.
"The 2014 holiday season did just fine — it just looked a lot different," Marshal Cohen, chief industry analyst with the NPD Group, wrote Wednesday in a blog post. "We're looking at a new breed of holiday."
Jack Kleinhenz, the retail group's chief economist, said 2014 holiday sales were the strongest since 2011 despite a "disappointing" December.
"Consumers going into the holiday season had the spending power necessary to give retail the shot in the arm it needed," he said in a Wednesday statement.
One problem that retailers faced during the holidays, analysts said, was a dearth of must-have gadgets, toys or clothing items.
That put pressure on categories such as electronics and appliance stores, which 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 at clothing and accessories shops, while spending fell 1.9% on building materials and garden supplies. In all, 9 of 13 categories suffered a drop.
That's despite falling fuel prices that sent gas station sales down 6.5% last month. Consumers in December were paying nearly $1 less for a gallon of regular gas compared with a year earlier, and California motorists closed out 2014 enjoying the lowest pump prices in more than five years.
For all of 2014, retail sales rose 4% from the year before, the Commerce Department said.
Americans at the bottom third of the wage scale spent that money on higher costs in areas such as food and rent, industry watchers say.
Howard Levine, chief executive of Family Dollar Stores, said last week that rising housing and health insurance expenses could continue to put pressure on many customers.
"When we look at the Family Dollar shopper, it is clear that she has continued to face economic head winds even as the broader market has experienced a recovery," Levine said during a conference call with analysts.
With the holiday season now in the rearview mirror, some experts expect that a large number of seasonal retail workers will be back on the job hunt.
Retailers hired about 603,200 employees in November and December, down 4% compared with 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 closing about 40 locations and cutting 2,250 employees from its staff. And struggling teen retailer Wet Seal is laying off nearly 3,700 employees and closing 338 underperforming stores.