Americans cut spending in December, the second month in a row they did so, highlighting how inflation and rising costs of using credit cards are slowing consumer activity during the key shopping season. holidays.
Retail sales fell a worse-than-expected 1.1% in December, after a revised 1% decline in November, the Commerce Department reported on Wednesday. In October, retail sales rose 1.3%, helped by early holiday shopping
Car sales are down because rising interest rates on car loans are reducing demand. That, and lower gas prices, helped drag overall retail sales lower.
The swineherd raised its main interest rate in December for the seventh time in 2022 for the exact reason as it tries to cool spending and inflation.
Even excluding sales from auto and gasoline, retail sales fell 0.7%. Retail sales are not adjusted for inflation unlike many other government reports.
“There are cracks showing the strength shown by consumers in 2022, because higher prices, rising interest rates and the uncertainty of the macroeconomic environment finally took their toll,” said the Vice President of Moody Mickey Chadha in a report.
Chadha noted that the low unemployment rate and wage gains have so far supported consumer spending, but in the coming months, Moody’s sees consumers becoming “more selective” in their spending and postponing purchases, which put a damper on retail sales in the first half of the year.
Sales fell in key gift-giving categories for the end of the holiday season. Sales fell 1.1% at electronics and appliance stores; Furniture and home furnishing stores saw a 2.5% decline. And department stores suffered a 6.6% decline. Sales at online retailers fell 1.1%. Restaurants also saw a leak.
Spending has remained strong despite the rise in inflation that began nearly 19 months ago, but Americans’ capacity to continue spending has declined.
Strong hiring, wage increases, and savings boosted by government financial support during the pandemic have enabled most Americans to keep up with rising prices. That government assistance ended long ago, however, and few Americans have been dipping into savings accounts since then. Credit card defaults are rising with some households being slow to adjust their spending to a new reality.
However, the labor market continues to be a pillar of the US economy’s stability and wages are still rising, creating a conflict for the Fed, which needs to cool spending and hiring to control inflation.
Inflation appears, at least for now, to be retreating. Inflation fell 6.5% in December, the sixth consecutive month of decline.
On a monthly basis, prices actually fell 0.1% from November to December, the first drop since May 2020.
Things are still more expensive than last year, though, and that’s starting to show on the bottom line for many major retailers. Stores have to discount heavily these days to get shoppers to buy.
said Macy lowered its quarterly sales outlook this month after customers spent less than expected during the quiet period between the Thanksgiving weekend and the final days before Christmas. And yoga pants maker Lululemon warned that profit margins for the fiscal fourth quarter will tighten as shoppers focus on discounts.
Another challenge facing retailers is that shoppers are shifting their spending towards travel and other experiences and away from goods.
Bloomingdale’s Chairman and CEO Tony Spring noted earlier this week at a retail industry event that the chain is promoting travel items to capture more spending. It also lit up its mannequin displays to stimulate shoppers returning to stores after focusing on online spending during the height of the pandemic.
Later on Wednesday the National Retail Federation, the nation’s largest retail trade group, will release final holiday sales figures for November and December. Trade group officials said earlier this week that holiday sales were likely to be at the lower end of its forecast range of 6% to 8%, a big slowdown from last year’s blistering 13.5% increase when shoppers spent the money they saved during the early part of the pandemic.
Jack Kleinhenz, chief economist of the National Retail Federation, expects companies to manage inventories more tightly in 2023 after being forced to heavily discount items last year due to large amounts of unsold merchandise.
“I think they’re very cautious because of what happened,” Kleinhenz said.
The retail report released Wednesday covers only about a third of total consumer spending and does not include services such as haircuts, hotel stays and airline tickets.
AP Economics writer Chris Rugaber in Washington contributed to this report.
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