San José, CA – On Friday, January 14, the U.S. Department of Commerce reported that retail sales dropped 1.9% in December 2021. This number was called “terrible” by economists, who expected a very slight drop of 0.1%. Since the retail sales report is not adjusted for inflation, sales discounting higher prices fell almost 2.5%.
Many news reports tried to blame the new Omicron variant of COVID-19, which began to surge in the United States in December. But online sales, which usually go up when people don’t want to shop in stores because of the pandemic, fell a much sharper 8.7% in December, more than four times the overall drop in sales. Restaurants and bars, which do worse when people stay home, only fell 0.8%, or half the average drop in sales.
More likely is that the surge of sales in 2021 has begun to fade. Even including the December drop, retail sales at the end of 2021 were almost 17% higher than the end of 2020. This reflected the trillions of dollars in federal government monies to fight the recession of 2020. But this aid has ended piece by piece. The last relief checks went out early in 2021. The federal eviction moratorium ended in August. Expanded unemployment insurance benefits ended in September.
With last expanded federal Child Tax Credit payments going out in December, only the federal student loan moratorium remains. State and local government budgets are starting to go into the red, so cuts will start to be more frequent this year. This trend towards more government austerity, combined with the Federal Reserve Bank’s commitment to start raising interest rates as soon as March, will put two brakes on the economy.
While the economy surprised many by bouncing back from the recession in 2020 and 2021, it is more likely to surprise to the downside in 2022. One sign of growing negative economic views of the future among wealthy investors is that the stock market began the year with back-to-back weekly drops.