Retail Sales Slowed in December Despite Robust Holiday Shopping Season

The retail sales report provides a data point on the mind-set of consumers after a report this week showed that inflation climbed to its highest level in 40 years at the end of 2021. Prices have increased as new variants of the coronavirus have exacerbated supply chain issues and robust consumer demand for goods. At the same time, the Omicron wave has caused widespread staffing shortages and may have played a role in diverting some consumers from stores and holiday gatherings.

Ms. Bovino said that she did not believe that inflation played a role in the overall sales decline but that concerns around higher prices were likely to show up in the first quarter of this year.

Economists at Morgan Stanley had forecast retail sales to rise by 0.4 percent in December. Even though inflation topped the coronavirus as the No. 1 concern for consumers it surveyed in November, that “came with no dent to spending plans,” they said in a note last week.

Instead, the holiday shopping season appeared to break records and lower-income consumers seemed to be operating with relatively better buying power, the economists wrote. At the same time, they anticipated that the Omicron wave drove more spending to goods rather than services.

The pandemic has continued to shape consumer habits in the United States.

Fewer people shopped in stores this holiday season, even though the Omicron variant did not become a prominent threat until December. Retail foot traffic in the United States was down 19.5 percent between Nov. 21 and Jan. 1 compared with 2019, according to Sensormatic Solutions. That was a slight improvement from the depths of the pandemic in 2020, when foot traffic was down 33.1 percent in the same period compared with 2019, but still a significant change.

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As retailers grapple with inflation and supply chain issues, it has given an additional advantage to the biggest U.S. retailers. They had already benefited during the pandemic by being able to remain open while others closed, from the variety of goods that they carry and through initiatives like curbside delivery.

“We’re talking about the Walmarts and Targets and Costcos, the big players,” said Mickey Chadha, a retail analyst at Moody’s Investors Service. “They’ve leased their own ships and they’re bringing in product. They have a lot more power with vendors to get priority. And they actually planned ahead as well.”

At the same time, Mr. Chadha said, they have not had to raise their prices as much as smaller retailers, and are likely to benefit as lower-income consumers search for value to stretch their dollars.

“They are taking market share because they have the ability to price lower and absorb that hit to the margin a lot better than some of the smaller, weaker retailers,” he said.

Costco, for example, said on a December earnings call that it believed it was successfully managing the effects of inflation through its relative purchasing power and its relationships with vendors. That often meant that Costco and its suppliers were each taking less in the way of price markups, Richard Galanti, the company’s chief financial officer, said on the call.

“We’ve always said we want to be the last to raise the price and the first to lower the price, recognizing there’s a limit to what you can do based on these cost increases,” Mr. Galanti said.

Costco also acknowledged that although it was grappling with unavoidable supply chain issues, including delayed container arrivals on the West Coast, it felt “pretty good about staying in stock.”

Plenty of other retailers have said that supply chain issues cut into their revenue last year, as pandemic-related factory closures in Vietnam and shipping delays kept goods from American shelves and warehouses.

“Holiday was weaker than expected as units that were slated to arrive in December did not clear through the ports in the time frame we had anticipated,” Fran Horowitz, chief executive of Abercrombie & Fitch, said at a conference on Tuesday. “This was beyond our control and resulted in a miss of sales during the peak selling period. Beyond those delayed units, we also experienced renewed Covid-related restrictions globally.”

Still, some retail executives have said that they would rather have a supply issue than a demand issue, particularly given the sharp ebbs and flows in consumer preferences in the past 18 months. And it is not yet apparent whether price increases are tamping down demand given the quarterly performance.

Mr. Chadha said that retail sales were strong for 2021 overall, though he anticipated that the picture would change in 2022, as supply chain issues and higher prices became bigger factors.

Ms. Bovino of S&P said that she expected more selective purchasing to take hold later this year as savings accounts begin to deplete and consumers “remember what prices used to look like.”

January retail sales may also be affected by shortened store hours and closures as the Omicron wave causes widespread staffing shortages in multiple industries.

But there were also laggards: Profit for the bank’s consumer division, which caters to Main Street customers, fell 2 percent to $4.2 billion. Revenue from trading fell 11 percent from a record fourth quarter a year ago, to $5.3 billion, but was still up compared with the same period in 2019.

Like JPMorgan, Citigroup reported lower fourth-quarter profit. Even so, its annual profit nearly doubled to $21.9 billion.

Net income slid 26 percent to $3.2 billion in the quarter, but still exceeded analyst forecasts. In an effort to streamline its business, the company is selling some overseas units. On Thursday, it announced a $3.6 billion sale of consumer operations in Indonesia, Malaysia, Thailand and Vietnam to UOB Group. It is also exiting from Mexico’s retail market.

Wells Fargo bucked the trend: Its fourth-quarter net income increased 86 percent to $5.8 billion, beating analyst expectations. Full-year profit rose to $21.5 billion in 2021, more than six times that of 2020. That year, the bank stockpiled rainy-day funds in case of a surge in loan defaults that did not materialize and was weighed down by efforts to clean up its fake accounts scandal.

“Everybody seems to be getting more and more confident that the recovery is continuing,” Michael P. Santomassimo, the company’s chief financial officer, said on a conference call. Given consumer spending and business activity, “we’re optimistic,” he said.

Bank stocks have risen 11 percent in the past month as investors predicted the Federal Reserve would raise interest rates this year to get inflation under control. Rising rates would clear a path for banks to increase profits because they can charge customers more in interest.

Executives at the nation’s biggest lenders have been upbeat about the economy in recent months, particularly during periods that the pandemic ebbed. They remained optimistic Friday, but acknowledged the potential for disruptions from rising inflation and surging coronavirus cases, which have caused staffing shortages in schools and businesses.

Inflation rose to the highest level in four decades at the end of last year. Rising prices have knocked consumer confidence and made businesses more uncertain about the future of the pandemic-stricken economy.

Three other major U.S. lenders — Bank of America, Goldman Sachs and Morgan Stanley — report their earnings next week.

A separate $10 million program funds vouchers worth up to $7,000 to help poor families leave districts that require face coverings or impose other Covid-related “constraints.”

In the letter, the Treasury Department said that if Arizona does not cease or change the programs within 60 days, it could start a process to recoup the money that is being misused. It also said that it could hold back the second installment of relief money that Arizona is scheduled to receive this year.

Arizona has so far received about $2.1 billion of the $4.2 billion that it was awarded through the $1.9 trillion relief package.

The Fed tries to guide the economy using borrowing costs and has two main goal: Keeping prices stable and fostering full employment.

Democrats tend to focus on the jobs side of that equation, but the last year has flipped that script to some degree. Inflation is running at its fastest pace since 1982 as the economy rebounds from the pandemic rapidly, eating away at paychecks and hurting consumer confidence. Getting prices under control has increasingly become a priority across parties.

Ms. Cook and Mr. Jefferson will both bring years of academic experience and economic training to bear in their roles, and both will hold a constant vote on interest rate policy.

Ms. Cook attended Spelman College and the University of Oxford and earned a doctorate in economics from the University of California, Berkeley. She was an economist on the White House Council of Economic Advisers under President Barack Obama. Mr. Jefferson has worked as a research economist at the Fed, and studied at the University of Virginia and Vassar College. He has written about the economics of poverty, and his research has delved into whether monetary policy that stokes investment with low interest rates helps or hurts less-educated workers.

Ms. Raskin’s new job would make her the nation’s top bank cop. She has extensive experience in Washington, having served in top roles at both the Federal Reserve and the Treasury in the past. She has also worked in the private sector, and is teaching a Duke University’s law school.

She is a Harvard-trained lawyer who studied economics as an undergraduate at Amherst College, and she has a track record of pushing for tougher bank regulation — something that makes her popular among Democrats, but which could earn her a tough confirmation battle.

All of the nominees need a simple majority to win confirmation, which means that they can plausibly pass with just Democrat votes, but given the party’s narrow control of the Senate, they need to either maintain the support of all of its members or garner some Republican support.

Senator Patrick J. Toomey, Republican of Pennsylvania, made clear in a statement released shortly after the pick that he has concerns with Ms. Raskin’s nomination and how she would approach financial regulation.

“I have serious concerns that she would abuse the Fed’s narrow statutory mandates on monetary policy and banking supervision to have the central bank actively engaged in capital allocation,” he said in a release after news of the picks broke on Thursday night.

The blocking of a federal rule subjects larger employers to a patchwork of city and state vaccine rules, which would have been pre-empted by a single federal rule. New York City, for example, requires all on-site workers to be vaccinated, while Florida passed a law banning such requirements. And the administration’s separate mandate for federal contractors is on hold and likely headed to the Supreme Court, too. Some companies, like Boeing, have delayed mandates until its fate is certain, while others, like Citigroup, have said they are going ahead regardless.

Companies that were on the fence now probably won’t introduce mandates.

A spokesman for Macy’s, which began to request the vaccination status of its employees this month, said the retailer was “evaluating this late-breaking development.” In a November poll of companies by Willis Towers Watson, about a third of respondents said they planned to mandate vaccines only if the government’s now-discarded rule took effect.

Health experts said the ruling would exacerbate existing divides.

Many white-collar employees can remain at home, while blue-collar workers who have to conduct business in person must venture out. “This decision will be an excuse for those employers who care less about their employees to return to business as usual,” said David Michaels, an epidemiologist and a professor at George Washington University who is a former administrator for the Occupational Safety and Health Administration.

Dr. Megan Ranney, an emergency physician and the associate dean at Brown University’s School of Public Health, said that with about 30 percent of adults in the United States unvaccinated, “I worry that those folks are going to continue to not get vaccinated, unless an awful lot of employers decide that this is in their best interest to put in place.”

Monthly China trade balance

Beijing has particularly focused on developing globally competitive manufacturing industries while importing mostly raw materials, so as to create as many well-paid jobs as possible within China’s borders. The government has also focused during the pandemic on helping Chinese companies become more competitive, while avoiding subsidies for consumers.

By contrast, governments in the West have put more emphasis on providing direct subsidies to consumers, who have used part of the money to buy more manufactured goods from China.

Chinese officials on Friday applauded the latest trade data, saying that it fulfilled the country’s goals. “In general, the 14th Five-Year Plan foreign trade has achieved a good start,” Li Kuiwen, the director of the Statistics and Analysis Department of China’s General Administration of Customs, said at a news conference in Beijing.

At the same time, a widening trade deficit with China has become a serious drag on growth in the United States and the European Union and has become a source of political friction.

Nearly half of China’s trade surplus in December was with the United States. The bilateral imbalance in December was $39.2 billion, slightly trailing the previous record of $42 billion, set in September.

President Donald J. Trump concluded a Phase 1 trade agreement in January 2020 that called for a sharp increase in China’s imports from the United States in 2020 and 2021, followed by further increases from 2022 through 2025. China fell short of the promised increases in the first two years of the agreement. Chinese experts have said that the pandemic interfered with normal trade flows.

China will not release until Monday its full-year statistics on total economic output. But estimates by Western economists, based on data through November, indicate that the widening of the trade surplus is now the main engine keeping China’s economy going, as real estate and other sectors falter.

Friday’s early decline in stocks was relatively mild compared with some recent swings, which have come as investors ratcheted up expectations for interest rate increases this year by the Federal Reserve. Those moves have hit technology stocks particularly hard, with the Nasdaq composite down more than 5 percent so far this year.

On Friday, the Nasdaq was slightly higher, rebounding from a late drop the day before.

Also on Friday, the Commerce Department reported that retail sales fell 1.9 percent in December, the first drop after four straight months of sales increases. The decline in part reflected an early start to the holiday shopping season, brought on by fears of product shortages and price increases. Total sales for October through December were up 17.1 percent from the same period a year earlier, according to the report.

In December, the Bank of England cut its growth forecast for the fourth quarter by half a percent, which would leave the economy 1.5 percent smaller than its prepandemic size. The central bank added that measures from the government and voluntary social distancing would weigh on the economy in the first quarter.

Although the daily number of Covid cases is falling again in Britain, the economy faces other hurdles in the next few months. Households face a notable increase in the cost of living as inflation is expected to peak at about 6 percent in the spring, energy bills are set to rise significantly and tax increases are looming.

“Omicron looks set to fade almost as quickly as it arrived, thanks partly to the rapid rollout of booster jabs,” Samuel Tombs, an economist at Pantheon Macroeconomics, wrote in a note to clients. He said he expected economic output to bounce back in February.

But growth from the middle of the year “likely will be sluggish, as households’ real incomes are squeezed by high inflation and taxes, and exports remain constrained by Brexit,” he added.

Mr. Gates solicited at least two employees while he was running Microsoft, according to reports in The New York Times and The Wall Street Journal. In one incident, in 2007, Mr. Gates sat through a presentation by a Microsoft employee, then immediately emailed her to ask for a date. Microsoft leaders later warned Mr. Gates not to do things like that. In 2019, Microsoft’s board received a letter from an engineer claiming to have had a sexual relationship with Mr. Gates in 2000. A spokeswoman for Mr. Gates confirmed that the two had had an affair that “ended amicably.”

Satya Nadella, Microsoft’s chief executive, said in a statement on Thursday that workplace culture was Microsoft’s “No. 1 priority.”

“We’re committed not just to reviewing the report but learning from the assessment so we can continue to improve the experiences of our employees,” he said.

Karen Weise contributed reporting.