A Surprising Slowdown for December Sales : 0.1% Drop Prompts Analysts to Predict Slowdown in ’95

Retail sales fell a surprising 0.1% in the peak holiday shopping month of December, the Commerce Department said Friday, prompting analysts to predict a slowdown in consumer spending and a slower-growing economy during the first half of 1995.

The drop was the first monthly decline in eight months. However, sales for all of last year were up 7.6%, the strongest showing since 1984.

Retail economists and industry analysts cautioned that the report may not be a definitive examination of holiday season spending because Commerce Department estimates--which include sales of food and automobiles as well as items such as apparel and toys--are sometimes revised.

But, they said, the report could be a long-awaited sign that interest rate increases--and fear of further hikes--are beginning to take a toll on consumers.

“Consumers are going to pause because they relied heavily on credit cards during the holiday season, and they want to pay those bills early this year,” said George Rosenbaum, chief executive of Leo J. Shapiro & Associates, a Chicago-based firm that conducts research on consumer spending plans.

The Commerce Department on Friday also revised sharply downward its retail sales figures for November to show a gain of 0.2% instead of an earlier 1.2% rise.

Economists said the inflation-wary Federal Reserve Board is still expected to raise interest rates at its Jan. 31-Feb. 1 meeting. But as a result of Friday’s retail figures, many now believe the Fed will be more restrained in lifting rates during the first half of 1995--and some suggested the Fed might not raise rates at all.

“Sales were disappointing, but there’s good news: Interest rates won’t go as high as feared,” said Walter Loeb, a New York-based retail analyst.

Expectations of a more restrained Fed and reports of some stabilization in Mexico’s troubled financial markets helped the Dow Jones industrial average soar 49.46 points to 3,908.46, its biggest one-day trading gain since Oct. 28.

Although the stock market was upbeat, many retail industry analysts were shocked by the Commerce Department report.

“Even though it’s a small decrease, this December report absolutely stuns me,” said Richard Giss, a partner in the retail services division of Deloitte & Touche. “There are a lot of mixed messages to consider.”

Indeed, industry experts had estimated that nationwide sales during the holiday season months of November and December were up about 4% over the same two months in 1993, and that Southland holiday sales for the same period were up an estimated 5%. However, those estimates were based largely on sales at department stores, discount stores and specialty retail chains.

Accordingly, the Commerce Department had been expected to report a December sales increase of 0.6%, not 0.1%.

Economists said declining sales in big-ticket items accounted for much of the decline, and retailers also reduced their sales value by cutting prices deeply to attract value-conscious consumers.

Consumers have shown signs that they are preparing to restrain spending to pay off mounting credit debt, said Kurt Barnard, a New Jersey-based retail economist. Barnard said the savings rate in November increased from 4.1% to 4.7%.

Barnard, as did many other economists, predicted retail sales will increase 4% to 5% for the first six months of 1995, compared to increases of 6% over the same period a year ago.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Retail Sales

Seasonally adjusted, in billions of dollars:

Dec. 1994: $191.9

Source: Commerce Department