- Retail Sales fall 1.1% in December; November sales lowered
- Core Retail Sales Fall 0.7%; November sales unchanged
WASHINGTON, Jan 18 (Reuters) – US retail sales fell more-than-expected in December, dragged down by declines in purchases of autos and a range of other goods, putting consumer spending and the broader economy on a weaker growth path into 2023 brought.
The broad contraction in sales reported by the Commerce Department on Wednesday, coupled with easing inflation, should encourage the Federal Reserve to further moderate the pace of its rate hikes next month. The US Federal Reserve is in its fastest rate hike cycle since the 1980s.
“Weak retail sales in December show consumers are likely to step back in times of economic uncertainty,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “The course of the US economy is weakening and recession risks for 2023 are increasing.”
Retail sales fell 1.1% last month. Data for November has been revised to show a 1.0% decline in sales instead of the 0.6% previously reported. It was the second monthly decline in a row. Economists polled by Reuters had forecast a 0.8% drop in sales. Retail sales rose 6.0% year-on-year in December.
Retail sales consist primarily of merchandise and are not adjusted for inflation. The decline in sales in December was likely due in part to falling commodity prices during the month. Holiday shopping was also brought forward into October as inflation-wearied consumers took advantage of discounts offered by retailers.
Higher borrowing costs as the Federal Reserve fights inflation also weighs on retail sales, as goods are typically financed on credit. Retail sales were also likely to be impacted by a cold snap in December and lower gasoline prices, which impacted gas station revenues.
In addition, spending is shifting back to services.
Sales at auto dealerships fell 1.2%. Revenues at gas stations collapsed by 4.6%. Online retail sales declined 1.1%. Furniture store sales plummeted by 2.5%. Foodservice revenue, the only service category in the retail sales report, fell 0.9%.
Sales of electronics and household appliances fell by 1.1%. Clothing store sales fell 0.3%. Convenience stores also experienced declines in revenue.
But sales at sporting goods, hobby, musical instrument and bookstores rose slightly by 0.1%. Building materials and garden equipment suppliers’ revenue rose 0.3%.
The Fed last year raised interest rates by 425 basis points from near zero to a range of 4.25% to 4.50%, the highest level since late 2007. In December, it forecast borrowing costs to rise by at least another 75 basis points by the end of 2023
Excluding autos, gasoline, building materials and hospitality, retail sales fell 0.7% last month. November data has not been revised to show that so-called core retail sales fell 0.2%, as previously reported.
Core retail sales correspond most closely to the consumer spending component of gross domestic product. Weakness in core retail sales should be offset by expected increases in services spending. Consumer spending continues to be supported by tight labor markets, which keep wages high.
INFLATION DECREASE
With inflation-adjusted consumer spending up 0.5% in October and flat in November, economists expect total consumer spending growth in the fourth quarter to exceed the 2.3% annual rate recorded in the third quarter.
Estimates for gross domestic product growth for the October-December quarter are up to 4.1%, also reflecting the sharpest decline in November’s trade deficit since early 2009. The economy grew 3.2% in the third quarter.
Nevertheless, consumer spending and the overall economy are entering 2023 with less momentum. Savings are also dwindling.
Most economists expect the economy to slip into recession in the second half of the year, although there are cautious hopes that moderate inflation could prevent the Fed from raising interest rates significantly. This would result in growth only slowing sharply, rather than the economy shrinking.
Inflation news continued to be encouraging. A separate Labor Department report on Wednesday showed that the final consumer price index fell 0.5% in December after rising 0.2% in November.
In the 12 months to December, the PPI rose 6.2% after rising 7.3% in November. Economists had forecast the PPI to fall 0.1% on the month and rise 6.8% year-on-year.
The report followed reports last week that monthly consumer prices fell in December for the first time in more than 2 1/2 years.
A 1.6% decline in commodity prices was responsible for the decline in the PPI. Goods, which rose 0.1% in November, were dragged down by a 7.9% plunge in energy and a 1.2% drop in food prices.
Services prices edged up 0.1% after rising 0.2% in November.
Excluding the volatile components of food, energy and trade services, producer prices increased by 0.1% in December. The core PPI rose 0.3% in November.
In the 12 months to December, the core PPI rose 4.6% after rising 4.9% in November.
Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci
Our standards: The Thomson Reuters Trust Principles.
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