Retail Sales Plummet as Jobless Claims Unexpectedly Rise

Retail sales fell 0.9% as jobless claims rose to a four-month high.

The Department of Commerce reported Wednesday that retail sales fell 0.9% month-over-month on a seasonally adjusted basis in December, representing a 3.2% year-over-year increase from December 2013, unadjusted for price differences.

Retail trade sales were down even lower, with a 1.1% decline from November, representing a 2.6% year-over-year rise.

Retail sales fell 0.9% as jobless claims rose to a four-month high.

The Department of Commerce reported Wednesday that retail sales fell 0.9% month-over-month on a seasonally adjusted basis in December, representing a 3.2% year-over-year increase from December 2013, unadjusted for price differences.

Retail trade sales were down even lower, with a 1.1% decline from November, representing a 2.6% year-over-year rise.

With falling sales and lower prices, the U.S. Treasury saw a drop in yields, especially for extended durations. The 30-year bond yield fell to a record low in Wednesday’s trading, falling to 2.44%.

Expectations of a 0.1% decline in spending in December were far higher than expectations, as many economists expected more robust spending from consumers thanks to freed up income from lower energy costs. However, some economists have warned that falling prices will in fact pressure wages and spending. Previously, the Bureau of Labor announced that average wages fell in December by 5 cents.

Jobless Rises

As consumers are spending less, the economy is also seeing more unemployment. Jobless claims surged over 6% in the second week of January, against expectations for a weekly drop in claims.

According to the Labor Department, the week ending January 10 saw 316,000 applications filed. While some economists acknowledge that this is a volatile period for joblessness, (early January layoffs hit many seasonal workers) most analysts were not expecting a dramatic rise in claims.

Some analysts worry that pricing pressure is contributing to weak demand, which is hurting the job market. Wholesale prices fell 0.3% in December, according to the Labor Department, indicating weak pricing power and possibly threatened margins by some producers.

However, payrolls saw a surge in December, rising by 252,000 and causing the unemployment rate to fall to 5.6%, the lowest level since the global financial crisis in 2008. Many economists have expected a steady decline in the jobless rate as consumers continue to become more confident.

While some have argued that falling prices due to lower oil costs may embolden more consumer spending, others warn that the trend could cause consumers to delay purchases, thereby causing further price declines.

Rate Change Speculations

The rise in joblessness and fall in prices has led many analysts to abandon earlier predictions of a rate hike in 2015, arguing that lower prices will give the Federal Reserve more room to keep rates low in an effort to fight off deflation.

The Federal Reserve announced on Wednesday that it saw “modest” to “moderate” economic growth. According to the Fed’s Beige Book, a healthy rise in jobs could cause wages to rise on the bottom end of the spectrum in the future, despite recent declines in average wages.

“Payrolls in a variety of sectors expanded moderately…. Significant wage pressures were largely limited to workers with specialized technical skills.”