A December To Not Remember: What Drove The Recent Plunge In U.S. Retail Sales?

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On the latest edition of Market Week in Review, Chief Investment Strategist Erik Ristuben and Rob Cittadini, director, Americas institutional, discussed slumping U.S. retail sales, stalled economic growth in Germany and the latest numbers from fourth-quarter earnings season.

Disappointing December for U.S. retailers: What’s to blame?

The Commerce Department reported that U.S. retail sales tumbled 1.2% in December from a month prior—a somewhat startling drop, Ristuben said. In his opinion, the slide in sales can largely be attributed to two factors: Sagging consumer confidence and harsh winter weather in parts of the U.S.

“By late December, the partial U.S. government shutdown was underway, and the stock market was off nearly 20%—so the hit to confidence levels among the U.S. consumer isn’t too surprising,” Ristuben remarked. Severe cold in the nation’s midsection appears to have played an even bigger role in December’s disappointing numbers, he added, explaining that retailers in the Midwest saw the largest monthly drop-off in sales.

Because the numbers were driven mostly by what he and the team of Russell Investments strategists view as transitory factors, Ristuben expects to see a normalization in retail sales as the year progresses. “The labor market in the U.S. remains strong, wages are increasing and the government shutdown is in the rear-view mirror—all of which argue for a return to more typical levels of spending among the U.S. consumer,” he said. However, Ristuben cautioned that a bounce-back in January’s numbers is unlikely, as the government shutdown didn’t end until Jan. 25 and much of the country remained in the grips of the polar vortex through the end of the month.

Germany narrowly avoids recession as economic growth stalls

Shifting to Europe, Ristuben said that Germany—the largest economy in the eurozone—reported a GDP (gross domestic product) growth rate of zero during the fourth quarter of 2018. He noted that this barely allowed the country to escape entering a recession—defined as two consecutive quarters of negative growth—as Germany registered a growth rate of -0.2% during the third quarter of last year.

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