Minneapolis CNN –
It was a terrible end to 2022 for spending in America.
U.S. retail sales continued their decline in December, falling 1.1 percent as inflation remained high, the Commerce Department said on Wednesday.
This was the biggest monthly decline since December 2021, and in virtually every category (except building materials, groceries and sporting goods) sales were down from the previous month.
Economists had expected sales to fall just 0.8 percent for the month, according to Refinitiv. The number for November was revised down to -1%.
Overall, the final retail sales report for 2022 shows a subdued finish to the holiday season, which crept further into October than the traditional late November and December.
October was the last month of strong retail sales for 2022, as deflation and slowing inflation prompted consumers to shop more then, said Kayla Bruun, an economic analyst at Morning Consult.
“I think the hope was that it would bring a little more momentum to the holiday season,” she said. “But it really turned out to be more of an early spike that actually took away some of the spending that would have otherwise happened in November and December.”
The Commerce Department’s retail sales data is unadjusted for inflation, which hit a 40-year high in June before falling in the second half of 2022 to 6.5% in the 12-month period ending in December. according to the latest consumer price index reading released last week.
Wholesale price growth also cooled significantly: The producer price index for December was 6.2%, according to Bureau of Labor Statistics data released Wednesday.
During the November and December holiday season, retail sales rose 5.3 percent in 2021 to $936.3 billion, the National Retail Federation said Wednesday.
The holiday total, which is not adjusted for inflation and excludes sales at car dealerships, gas stations and restaurants, missed the trade association’s forecast of a 6% to 8% rise in holiday sales.
“We knew it was possible to get to the bottom of the holiday sales given early shopping in October, which likely pushed some sales forward plus price pressures and cold, blustery weather,” Jack Kleinhenz, NRF’s chief economist, said in a statement . “The pace of spending has been choppy and consumers may have withdrawn more than we had hoped, but these numbers show that they have fared relatively well in a challenging inflation-driven environment.” The bottom line is that consumers are still engaged and shopping despite everything going on around them.”
Consumer spending remains steady despite inflation, rising interest rates and fears of a recession. However, some economic data suggests that activity may be losing steam and that Americans are running out of steam.
“I think consumers have become very active in managing their household budget and what they’re willing to spend on,” said Matt Cramer, KPMG’s national sector leader for consumer and retail. “They spend more time looking for deals and are more careful when they make purchases.”
This was reflected in monthly sales declines in categories such as motor vehicles, which were down 1.2% from November; furniture, down 2.5%; and electronics, down 1.1%, according to Wednesday’s report.
“Certainly with those big purchases, financing purchases where interest rates play a role, consumers are pushing those decisions out and expanding their buying cycles around the larger categories,” he said.
The next few months are traditionally the slowest for retailers, but headwinds like credit card debt and stubborn inflation could make that worse, said Ted Rossman, senior industry analyst for Bankrate.
“A further slowdown in purchases appears likely, at least in the short term,” Rossman said in a statement.
Discretionary spending tends to come first, with people typically cutting back on travel, dining out and other expenses, said Amanda Bellarmino, assistant professor of hospitality at the University of Nevada, Las Vegas.
However, pent-up post-pandemic demand, which fueled strong service spending in 2022, is still strong. Spending on food services and places to drink increased 12.1% in December from a year earlier.
“What we’ve seen in restaurants, tourism, hospitality is the complete opposite of what we typically see in an economic slowdown,” Bellarmino said. “We’ve seen consumers continue to make those expenditures. But where you see these delays are things like people canceling their streaming services, canceling their Peloton, canceling their home services. So it seems that consumers are making these trade-offs.
However, changes in tipping activity may be a harbinger of changes to come.
“The average tip rate in the U.S. has risen to about 18% to 20%, and there are some indicators that it will fall back to the 15% range,” Bellarmino said. “It’s not a big deal, but it’s a way for consumers to save money.”
How much spending activity holds in service industries will be a critical indicator in the coming months, Morning Consult’s Bruun said, adding that a strong labor market should help prevent a dramatic collapse in spending.
“It’s the consumer spending component that’s driving growth,” she said. “And it’s going to have to, going forward, because we’ve really seen commodity demand pretty much run out.”
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