US retail sales drop significantly in December as Omicron cases surge and supply issues persist

The US retail sales unexpectedly dropped by 1.9% in December after 0.2% increase previous month and disappointed expectations for 0.1% drop.
Sharp fall was mainly caused by surge in coronavirus Omicron variant infections and big shortages of goods on the persisting bottleneck in supply chains.

So called core retail sales, which exclude the volatile components such as gasoline, automobiles, food services and building materials, fell 2.3% last month from November’s downwardly revised 0.1% increase and strongly missed 0.2% forecast, but strong increase in October would offset December’s downbeat results and contribute to strong economic growth in the fourth quarter, as spending remains strong, mainly due to massive savings and despite rising inflation which outpaced wage growth.

Economists expect retail sales to weaken further in January as strong rise in new infections is likely to limit consumer traffic to places like restaurants and bars, the only services category in retail sales, while persisting supply issues are expected contribute to the short-term weaker outlook.