Traders work on the floor of the New York Stock Exchange at the end of the day in New York, New York, USA, on 12 February 2019. The Dow Jones industrial average gained over 370 points today partly in response to news that United States legislators have put together a deal to avoid another government shutdown.New York Stock Exchange, USA - 12 Feb 2019

An extremely weak and puzzling holiday spending picture emerged Thursday, leading some economists to question the validity of the government’s official retail sales data.

Dashing hopes that spending was strong during the vital holiday season, which makes up the lion’s share of retailers’ profits, official figures showed retail sales across stores, restaurants and online slumped 1.2 percent in December. (The figures are adjusted for seasonal variations and mark the change compared with November sales).

Excluding autos, gasoline and materials, sales were down 1.6 percent, the biggest monthly decline since September 2001, when much of the country essentially shut down for a week.

The gloomy numbers, which were delayed because of the partial government shutdown, pointed to a weakening economy and spooked investors, who exited a barrage of retail stocks. Among those that ended the day in negative territory were Guess Inc., down 2.9 percent to $20.42; Abercrombie & Fitch Co., off 2.1 percent to $21.01; Nordstrom Inc., down 1.6 percent to $43.90, and Amazon, down 1 percent to $1,622.

The Dow Jones Industrial Average decreased 0.4 percent, or 103.8 points, to 25,439.39, while the S&P 500 fell 0.3 percent to 2,745.68.

Economists were perplexed by the data, especially since retailers’ holiday results, although not generally strong, did not point to overall sales coming in as weak as they did. The result was also at odds with the recent strength of payroll gains.

Some pondered whether the 35-day partial government shutdown interfered with the numbers in some way.

Stephen Stanley, chief economist at Amherst Pierpont Securities, said: “The question here is not whether to take the results literally — clearly these numbers are not an accurate description of the state of the consumer. The question is whether to give them any credence at all. Should we assume that a quarter of the weakness relative to expectations is legitimate? Half? Or none at all?” 

He raised the possibility that the shutdown tainted either the survey responses or the data collection and calculation process, but concluded that he had more questions than answers.

National Retail Federation chief economist Jack Kleinhenz described the figures as “truly a surprise” and in contradiction to the strong consumer spending seen in October and November.

“The combination of financial market volatility, the government shutdown and trade tensions created a trifecta of anxiety and uncertainty impacting spending and might also have misaligned the seasonal adjustment factors used in reporting data,” he said. “This is an incomplete story and we will be in a better position to judge the reliability of the results when the government revises its 2018 data in the coming months.”

In contrast, Michael Pearce, senior U.S. economist at Capital Economics, argued that the numbers indicated the economy entered 2019 with much less momentum than anticipated, although added that doesn’t mean the economy is falling into recession.

He is now forecasting fourth-quarter gross domestic product growth will most likely come in close to 2.5 percent, compared with the 3.1 percent he had previously penciled in. Economists at J.P. Morgan slashed its forecast to 2 percent.

The White House attempted to play down the figures, with Larry Kudlow, director of the National Economic Council, blaming it on the shutdown as well as shoppers making late holiday purchases and stating that he “wouldn’t be surprised if January was revised up because of that.”

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