December Retail Sales

The U.S. Commerce Department reported Thursday that retail and food-services sales declined 1.2% in December to $505.8 billion, well short of expectations for a 0.1% monthly advance. This decline represents the worst drop in nine years. The December reading follows a 0.1% increase (revised down from +0.2%) in November. Year over year, December's retail number increased by 2.3%, and for the full 12 months of 2018, total sales increased 5.0% from 2017.

On a monthly basis, excluding auto sales (which because of their high-ticket price can result in volatile monthly readings), retail sales declined 1.8 %, well below a flat expectation. Excluding autos and gas, sales fell 1.4%, representing the largest drop since March 2009.

Core retail sales (i.e., retail sales excluding autos, gas, building materials and food services) sharply fell by 1.7%. This followed an upwardly revised 1.0% gain in November. While this group is not considered to have as big an impact on trading as the headline number unless there is significant deviation from expectations, we note the results because it is also what is known as the "control" group and is used in calculations of personal consumption expenditure (PCE) gross domestic product (GDP).

Digging deeper into the report also shows:

• Gas stations sales: -5.1% MoM and -0.2% YoY
• Motor vehicle & parts dealers sales: +1.0% MoM and +3.4% YoY
• Building material & garden equipment & supplies dealers sales: +0.3% MoM and +1.4% YoY
• Electronics & appliance stores sales: -0.1% MoM and +0.7% YoY
• Miscellaneous store retailers sales: -4.1% MoM and +2.5% YoY
• General-merchandise stores sales: -0.9% MoM and +2.2% YoY
• Department Stores sales: -3.3% MoM and -2.8% YoY
• Sporting goods, hobby, musical instrument, & book stores sales: -4.9% MoM and -13.0% YoY
• Clothing and clothing accessory stores sales: -0.7% MoM and +4.7% YoY
• Non-store retailers (i.e., e-commerce) sales: -3.9% MoM and +3.7% YoY
• Food & beverage stores sales: -0.4% MoM and +1.4 YoY
• Health & personal care stores sales: -2.0% MoM and +1.6% YoY
• Food services & drinking places sales: -0.7% MoM and +4.0% YoY
• Furniture & home furniture stores sales: -1.3% MoM and -0.2% YoY

In reaction to the numbers, Ward McCarthy, chief financial economist at Jefferies wrote: "The bottom line on this data release is that it is truly dreadful pretty much across the board. Taken literally, this data release would indicate that the consumer sector collapsed in December."

But as we know from the positive holiday sales numbers from Kohl's (KSS) , who actually raised numbers after the holiday season and "comp'd" a very difficult comp, and also Five Below (FIVE) , who also slightly raised expectations after their holiday sales (see our full retail holiday sales roundup Alert here, this collapse was not felt across the board. There were retailers who performed.

Ward shared this skepticism by adding: "This release is such an outlier and so incongruous with the general trend in consumer spending, holiday consumer sales reports and holiday seasons consumer credit data that it does raise suspicions of data reliability."

Still, the numbers are the numbers. The results show the negative ramifications of what happens to consumer spending when there is a monetary policy misstep and interest rates are raised at a very inopportune time. The U.S. equity markets erased its pre-market gains after the result was announced, but we think it is worth remembering how the market's reaction is to old data and policy expectations have become far more patient and prudent. Additionally, we reiterate how our two retail names, Kohl's and Five Below, were raising their numbers after the holiday season. That's a result of them being market-share gainers in the industry through peer store closures and national expansion plans, respectively.

Members interested in digging even deeper into Friday's number can view the report's official release here.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long KSS, FIVE.