Many economists expect the caution that consumers displayed last month to carry over into this year and potentially slow the economy. Still, with average hourly pay rising and unemployment rate steadily dropping, analysts say spending and growth could pick up, at least modestly, once omicron fades.
“American consumers closed 2021 on a very sour note,” said Sal Guatieri, senior economist at BMO Capital Markets. “That said, high household savings, strong job growth, and improved confidence once the latest COVID wave crests should put consumers back on a high-spending track in the second quarter.”
Retailers warned for months that their supply chains had become snarled as the nation swiftly emerged from the pandemic recession, and they urged consumers to shop early for their holiday purchases. It appears that many Americans took heed and, in effect, moved up the usual holiday shopping period by a month or so.
Commerce Department figure show retail sales jumped 1.8% in October, and on Friday it reported that year-over-year numbers show that retail sales surged 16.9% last month compared with December 2020. For all of 2021, sales spiked 19.3% compared with the previous year.
Some economists caution that the seasonal adjustment of retail sales has been thrown off by the pandemic. Seasonal adjustment is intended to account for the normal spike in shopping in December for the holiday season. This year, though, because many Americans started shopping so early, the seasonal adjustment might have exaggerated any December spending retreat.
Some analysts also suspect that shoppers who waited until the end of the holiday season and didn’t find what they wanted and took a pass or they bought gift cards. That spending won't show up in retail data until those cards are redeemed.
All told, Americans appear to be spending their money differently — and spending more, not less, collectively.
Mastercard SpendingPulse, which tracks all kinds of payments including cash and debit cards, reported late last month that holiday sales surged 8.5% from Nov. 1 through Dec. 24 from a year earlier. That was the fastest such pace in 17 years.
“Consumer spending will remain the cornerstone of economic growth this year, but the near-term path will be choppy amid surging omicron cases," said Lydia Boussour, lead U.S. economist at Oxford Economics. Boussour said she thinks that after a soft patch in the first quarter, spending should rebound in the spring on the strength of strong wage growth and savings.
Stephen Stanley, chief economist at Amherst Pierpoint, agreed, pointing to a robust job market, pent-up demand and “a mountainous pile of extra cash to spend."
“People will spend again once the omicron wave fades," Stanley predicted.
The omicron variant has led to widespread worker shortages with many people calling out sick. And supply shortages have curtailed what goods make it to store shelves. Stores and restaurants have slashed operating hours or remained closed on days when they had previously been open.
This week, Lululemon warned that fourth-quarter sales and profits will likely come in at the low end of its expectations as it grapples with the variant’s fallout.
“We started the holiday season in a strong position but have since experienced several consequences of the omicron variant, including increased capacity constraints, more limited staff availability and reduced operating hours in certain locations," said CEO Calvin McDonald.
And inflation has settled in across almost every level of the economy, forcing the Federal Reserve to no longer characterize rising prices as “transitory.”
Last month, inflation jumped at its fastest pace in nearly 40 years, a 7% spike from a year earlier that is increasing household expenses and biting into wage gains. And the largest price spikes are hitting where Americans canmost feel it, with the cost of homes, cars, clothes and food racing higher.
Raquel Schuttler, who works in fashion sales, says that the surging cost of food has had a psychological impact on her spending everywhere.
The 53-year-old Atlanta resident, who does grocery shopping for her 17-year-old son and her fiancee, used to make intermittent trips to the grocery store in between big shopping trips. Those smaller trips are now costing her roughly $280, instead of $220, she said. She has pulled back on lunches at the mall with friends to avoid the temptation to shop there.
“I am being much more conservative," Schuttler said. “I stopped any kind of going out impulsively.”
Follow Anne D'Innocenzio on Twitter. AP Business Writer Christopher Rugaber contributed to this report.