It was a welcome end to spending in America until 2022.
US retail sales continued their decline in December, falling 1.1% as inflation remained high, the US Commerce Department reported on Wednesday.
This is the largest monthly decline since December 2021, and sales in virtually every category (except construction materials, groceries and sporting goods) were down from the previous month.
Economists had expected sales to fall just 0.8% for the month, according to Refinitiv. The November number has been revised to -1%.
Overall, the final retail sales report for 2022 shows a muted end to the holiday season, stretching into October compared to the traditional late November and December.
Morning Consult economic analyst Kayla Bruun said October was the last strong retail sales month of 2022 as discounting and slowing inflation prompted consumers to shop more.
“I think the hope was that it would give the holiday season a little more boost,” he said. “But really, it was just an early blip that took away some of the spending that might have happened in November and December.”
Retail sales data from the Commerce Department are not adjusted for inflation, according to the latest Consumer Price Index, which hit a 40-year high in June and 6.5% for the 12-month period ending in December before falling in the second half of 2022. reading that was missed last week.
Growth in wholesale prices also cooled significantly: The December Producer Price Index measured 6.2%, according to Bureau of Labor Statistics data released Wednesday.
Retail sales during the November and December holiday season rose 5.3% from 2021 to $936.3 billion, the National Retail Federation reported Wednesday.
The holiday total, which is not adjusted for inflation and excludes sales at car dealerships, gas stations and restaurants, falls short of the trade association’s forecast of a 6% to 8% holiday sales increase.
NRF chief economist Jack Kleinhenz said, “We knew early shopping in October could be touch and go for recent holiday sales, which likely pushed some sales forward, along with price pressures and cold, blustery weather. “. “The pace of spending has been sharp and consumers may have pulled back more than we had hoped, but these numbers show that they are managing a challenging, inflation-driven environment quite well. The bottom line is that consumers are still engaged and shopping despite everything else going on around them.”
Consumer spending remained strong despite inflation, rising interest rates and recession fears. However, some economic data suggests that activity may be losing some steam and Americans are running out of dry powder.
“I think consumers have become very active in managing their household budgets and what they’re willing to spend on,” said Matt Kramer, national sector leader for consumer and retail at KPMG. “They spend more time looking for deals and thinking when they shop.”
This is observed in the decrease of 1.2% of monthly sales in categories such as motor vehicles compared to November; furniture, down 2.5%; and electronics fell 1.1% in a report on Wednesday.
“Certainly in these big purchases, financed purchases, where interest rates play out, consumers are pushing those decisions and expanding their buying cycles around larger categories,” he said.
The next few months are traditionally the slowest months for retailers, but headwinds like credit card debt and stubborn inflation could make it worse, said Ted Rossman, chief industry analyst at Bankrate.
“There is likely to be a further slowdown in purchasing, at least in the near term,” Rossman said.
Amanda Belarmino, associate professor of hospitality at the University of Nevada Las Vegas, said discretionary spending usually comes first, with people typically cutting back on travel, dining and other expenses.
However, demand is still strong in 2022 after the pandemic, which has driven up strong service costs. Spending on food services and drinking establishments increased by 12.1% in December compared to the corresponding period of the previous year.
“What we’re seeing in restaurants, in tourism, in hospitality is the exact opposite of what we normally see in an economic slowdown,” Belarmino said. “We’ve seen consumers continue to make these expenditures. But where you see these slowdowns are things like people canceling their streaming services, canceling their Peloton, canceling their home services. It seems that consumers make these concessions.”
However, changes in drift activity may be a harbinger of future changes.
“The average price ratio in the U.S. has risen to about 18% to 20%, and there are some indications that it will fall back toward the 15% range,” Belarmino said. “It’s not a big deal, but it’s a way for consumers to save money.”
Morning Consult’s Bruun said how spending activity in service industries will continue will be a critical indicator in the coming months, adding that a strong labor market should help prevent a dramatic collapse in spending.
“It has been the consumer spending component that has driven growth,” he said. “And it’s going to have to go forward because we’ve really seen the demand for goods come down a lot.”