What started off as a strong holiday shopping season ended with a whimper, as consumers, rattled by a trade war and a government shutdown, tightened their belts. The Commerce Department said retail sales fell 1.2 percent between November and December, the sharpest drop in nine years.
The slowdown in consumer spending put a dent in overall economic growth. Forecasters at the Federal Reserve Bank of Atlanta lowered their estimate of fourth-quarter growth to just 1.5 percent. If that holds, growth for all of 2018 would fall short of the Trump administration’s 3 percent target.
“It appears that worries over the trade war and turmoil in the stock markets impacted consumer behavior more than we expected,” National Retail Federation President Matthew Shay said in a statement. “It’s very disappointing that clearly avoidable actions by the government influenced consumer confidence and unnecessarily depressed December retail sales.”
Retailers had reported robust sales in the first half of the holiday season. But consumers grew more cautious when a political standoff over border wall funding temporarily shuttered parts of the federal government just before Christmas. This followed a roller-coaster ride on Wall Street, as investors worried that trade tensions between the U.S. and China would cut into corporate profits.
“The combination of financial market volatility, the government shutdown and trade tensions created a trifecta of anxiety and uncertainty impacting spending,” said National Retail Federation chief economist Jack Kleinhenz.
The 35-day government shutdown delayed the release of the retail figures. But the Commerce Department said the shutdown did not compromise the quality of the survey. Retailers were not so certain.
“This is an incomplete story,” Kleinhenz said. “We will be in a better position to judge the reliability of the results when the government revises its 2018 data in the coming months.”
White House economic adviser Larry Kudlow shrugged off the downbeat numbers.
“The overall economy is very strong,” he told Fox News. “Investment is strong. Consumption is strong despite this number, which has so many glitches in it.”
While Kudlow maintained an outward show of confidence, he also said he’s pleased that the Federal Reserve has stopped raising interest rates for the time being. The sharp drop in December’s retail sales is likely to reinforce the Fed’s more cautious approach.
Boosting economic growth has been a top priority for the Trump administration. Growth accelerated to 4.2 percent in the spring of last year, thanks in part to the GOP tax cut and increased government spending.
While the White House argues faster growth can be sustained, many observers believe the effects are a temporary “sugar high” that will soon wear off. Growth in the third quarter slowed to 3.4 percent. A preliminary estimate of fourth-quarter growth will be released on Feb. 28.
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