- Retail sales fall 1.1% in December; November sales were down
- Core retail sales down 0.7%; November sales have not been revised
- Industrial production collapsed by 1.3%; Production cut in November
- Producer prices fall 0.5%; up 6.2% year-on-year
WASHINGTON, Jan 18 (Reuters) – U.S. retail sales fell by the most in a year in December, driven by a drop in purchases of motor vehicles and a range of other goods, putting consumer spending and the economy as a whole on a weaker path. weak growth in 2023
The second straight monthly decline in retail sales, which are mostly merchandise, undercut factory output. Manufacturing output fell to its biggest drop in nearly two years in December, while monthly producer prices also fell, other data showed on Wednesday.
Widespread signs of softening demand and subdued inflation are likely to encourage the Federal Reserve to further reduce the pace of interest rate hikes next month, but it will not stop its monetary tightening any time soon as the labor market remains tight. The US central bank is engaged in its fastest rate hike cycle since the 1980s.
“Consumers are likely to cut back in times of economic uncertainty,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “Economic Trajectory Weakens and Recession Risks Rise for 2023.”
Retail sales fell 1.1% last month, the biggest drop since December 2021. November data was revised to show sales fell 1.0% instead of 0.6% as reported on -early. Economists polled by Reuters had forecast a 0.8% drop in sales. Retail sales rose 6.0% year over year in December.
Retail sales are not adjusted for inflation. The decline in sales in December is likely partly the result of falling commodity prices during the month. Holiday shopping was also pushed forward in October as inflation-weary consumers took advantage of discounts offered by retailers.
A bitter cold snap in December likely dampened restaurant and bar sales. Lower gasoline prices, which weighed on gas station revenue, also helped dampen sales. In addition, costs are shifted back to services.
The model the government uses to remove seasonal fluctuations from the data has not fully adapted to the shift to more deliberate holiday shopping since the pandemic began, Bank of America economists said.
Even accounting for distortions, higher interest rates have raised the cost of credit, which many Americans use to finance purchases of goods, undermining retail sales in recent months.
The Fed’s beige paper report on Wednesday described consumer spending as “increasing slightly, with some retailers reporting firmer holiday sales.” But it adds that “retailers note that high inflation continues to erode consumer purchasing power, particularly among low- and moderate-income households.”
Sales at auto dealers fell 1.2%. Revenue at gas stations fell 4.6%. Online retail sales fell 1.1%. Sales at furniture stores fell 2.5%. Food and beverage spending, the only service category in the retail sales report, fell 0.9%.
Sales at electronics and appliance stores were down 1.1%. There was also a decline in sales at clothing stores, as well as revenue at general merchandise stores. But sporting goods, hobby and musical instrument stores posted gains, as did suppliers of building materials and garden equipment.
Last year, the Federal Reserve raised its key interest rate by 425 basis points from near zero to a range of 4.25%-4.50%, the highest level since late 2007. In December, it forecast at least an additional 75 basis points increase in borrowing costs until the end of 2023.
Financial markets pegged the Fed’s 25-basis-point rate hike from Jan. 31 to Feb. 1 meeting, according to CME’s FedWatch Tool. Wall Street stocks fell. The dollar was steady against a basket of currencies. US government bond prices rose.
[1/2] People ride an escalator at Saks Fifth Avenue in New York, U.S., December 4, 2022. REUTERS/Jeenah Moon
Retail sales
PRODUCTION IS DOWN
Excluding autos, gasoline, building materials and food services, retail sales fell 0.7 percent last month. Those so-called core retail sales fell an unrevised 0.2% in November.
Core retail sales correspond most closely to the consumer spending component of gross domestic product. Weakness in core retail sales is likely to be offset by expected gains in service costs. Consumer spending continues to be supported by labor market pressures that keep wages high.
The unemployment rate is at its lowest level in more than 50 years at 3.5%.
“Consumers have shifted spending more towards services as they return closer to pre-pandemic ‘normal’ of travel, eating out and attending live events,” said Will Compernall, senior economist at FHN Financial in New York.
With inflation-adjusted consumer spending rising 0.5 percent in October and unchanged in November, economists expect overall consumer spending growth in the fourth quarter to outpace the 2.3 percent annualized rate recorded in the third quarter.
Gross domestic product growth forecasts for the October-December quarter were as high as 3.5 percent, also reflecting the sharpest narrowing of the trade deficit in November since early 2009. The economy grew at a 3.2 percent pace in the third quarter. However, the economy entered 2023 with weaker momentum. Wage growth is slowing and savings are also falling.
A separate Fed report showed manufacturing output fell 1.3 percent in December, the biggest drop since February 2021, and output the previous month was much weaker than initially thought.
Most economists expect the economy to slip into recession by the second half of the year, although there is cautious hope that slowing inflation could discourage the Fed from raising its interest rate target above the peak of 5.1% forecast last month.
This would only lead to a sharp slowdown in growth rather than a contraction of the economy.
Inflation continued to ease, with a third Labor Department report showing that the producer price index for final demand fell 0.5 percent in December after rising 0.2 percent in November.
The government reported last week that monthly consumer prices fell for the first time in more than 2-1/2 years in December.
“The Fed is making progress in its fight against inflation, and while it’s unclear whether this will lead the Fed to become more dovish, it at least suggests that the central bank may not need to become more aggressive in raising interest rates and tightening liquidity,” said Jose Torres, senior economist at Interactive Brokers in Miami.
Reporting by Lucia Muticani; Editing by Chizu Nomiyama and Andrea Ricci
Our standards: The Thomson Reuters Trust Principles.
Add Comment