AP

December retail sales fall 1.1% as inflation takes a toll

Jan 17, 2023, 3:43 PM | Updated: Jan 18, 2023, 12:45 pm

Irene Schaefer, of Johnson Creek, Wis., shops for hats at Longhorn Saddlery in Dubuque, Iowa, on Fr...

Irene Schaefer, of Johnson Creek, Wis., shops for hats at Longhorn Saddlery in Dubuque, Iowa, on Friday, Dec. 30, 2022. On Wednesday, the Commerce Department releases U.S. retail sales data for December. (Jessica Reilly/Telegraph Herald via AP)

(Jessica Reilly/Telegraph Herald via AP)

NEW YORK (AP) — Americans cut back on spending in December, the second consecutive month they’ve done so, underscoring how inflation and the rising cost of using credit cards slowed consumer activity over the crucial holiday shopping season.

Retail sales fell a worse-than-expected 1.1% in December, following a revised 1% drop in November, the Commerce Department reported Wednesday. In October, retail sales ticked up 1.3%, helped by early holiday shopping

Auto sales declined as rising interest rates for auto loans crimped demand. That, and falling gas prices, helped to pull overall retail sales lower. The December figure marked the biggest monthly decline in 2022.

The Fed raised its key interest rate in December for the seventh time in 2022 for exactly that reason as it tries to cool spending and inflation.

Excluding sales from auto and gasoline, retail sales slipped 0.7%. Retail sales are not adjusted for inflation unlike many other government reports. Higher prices inflate sales, while lower prices push sales down. December spending may also have been trimmed by an early start to the shopping season after last year’s supply chain mess.

Also on Wednesday, the National Retail Federation, the nation’s largest retail group, said holiday sales in November and December rose a weaker-than-expected 5.3%, based on its calculations of the government figures. It was a dramatic slowdown from the 2021 holiday season when sales spiked 13.5%.

“There are cracks appearing in the resiliency that consumers have shown in 2022, as higher prices, interest rate increases and the uncertainty of the macroeconomic environment finally take their toll,” Moody’s Vice President Mickey Chadha said.

Low unemployment and wage gains have so far supported consumer spending, but Chadha said in coming months, Moody’s expects consumers to be increasingly “selective” in their spending in the first half of the year.

That has already hit some retailers hard like Party City, the event supply chain, which filed for Chapter 11 bankruptcy protection Tuesday. Yet it is being felt almost across the spectrum.

According to the data released Wednesday, sales dropped 1.1% at electronics and appliance stores; furniture and home furnishing stores saw a 2.5% drop. And department stores suffered a 6.6% decline. Sales at online retailers fell 1.1%. Restaurants also saw a drop. Painful price hikes for food have cooled a bit and there was a slight increase in sales last month.

Solid hiring, rising pay, and savings beefed up by government financial support during the pandemic enabled most Americans to keep up with rising prices. That government assistance has long ended, however, and some Americans have dipped into savings accounts since then. Credit card defaults are on the rise with some households slow to adjust their spending to a new reality.

Still, the job market continues to be a pillar of strength in the U.S. economy and wages continue to rise, creating a conflict for the Fed which needs to cool spending and hiring to control inflation.

Inflation does appear, at least at the moment, to be in retreat. Inflation fell to 6.5% in December, the sixth consecutive month of declines.

On a monthly basis, prices actually slipped 0.1% from November to December, the first such drop since May 2020.

There has been a pushback from consumers that have grown weary of rising prices, forcing retailers to cut prices to clear inventory.

Macy’s tempered its quarterly sales outlook this month and Lululemon warned that fourth quarter profit margins will be squeezed.

Major retailers including Walmart and Target release details on their fourth-quarter performances next month.

Jack Kleinhenz, chief economist at the National Retail Federation, expects companies to manage inventories more tightly in 2023 after being forced into heavy discounts last year.

“I think they are going to be very cautious because of what happened,” Kleinhenz said.

Petco CEO Ron Coughlin told the AP this week that shoppers had pulled back things like toys for their pets, though there has been something of a thaw as prices have stabilized. Still, Coughlin plans to be cautious on inventory.

“We are making sure we are ready for any scenario that comes, whether it’s no recession, a light recession or a heavier recession,” Coughlin said. “At the same time….we need to make sure we have the right product that people are looking for.”

The retail data released Wednesday covers only about a third of overall consumer spending and doesn’t include services such as haircuts, hotel stays and plane tickets.

__

AP Economics writer Chris Rugaber in Washington contributed to this report.

____

Follow Anne D’Innocenzio on Twitter

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Juanita Beach Kirkland...

Kathy McCormack and Nick Perry, The Associated Press

‘Tis the season for swimming and bacteria alerts in lakes, rivers

With summer about to start, many people flocking to their favorite swimming holes may also want to read up on bacteria warnings.

20 hours ago

Image: Members of the Makah Indian tribe paddle away from the rising sun as they head from Neah Bay...

Associated Press

Washington’s Makah Tribe clears major hurdle toward resuming traditional whale hunts

The U.S. granted the Makah Indian Tribe a long-sought waiver that helps clear the way for its first sanctioned whale hunts since 1999.

2 days ago

jerry west...

Tim Reynolds, The Associated Press

Jerry West, a 3-time Hall of Fame selection and the NBA logo, dies at 86

Jerry West, a three-time Basketball Hall of Fame inductee whose silhouette is considered to be the basis of the NBA logo, died Wednesday morning.

3 days ago

Photo: Construction vehicles are parked outside of the Station U & O building on Tuesday, June 11, ...

Haleluya Hadero, The Associated Press

Amazon adds $1.4B to affordable housing fund for regions where it has corporate offices

Amazon is adding $1.4B to a fund for building more affordable housing in regions where the company has major corporate offices.

4 days ago

hunter biden...

Randall Chase and the Associated Press

Hunter Biden convicted of all 3 felony charges in federal gun trial

Hunter Biden has been convicted of all three felony charges related to the purchase of a revolver in 2018, but no sentencing date was set.

4 days ago

Photo: A Bremerton man who made 20 "swatting" calls around the U.S. and in Canada, prompting real e...

Associated Press

Bremerton man sentenced for 20 ‘swatting’ calls of false threats in US, Canada

A Bremerton man who made 20 "swatting" calls around the U.S. and in Canada, prompting real emergency responses, has been sentenced.

5 days ago

December retail sales fall 1.1% as inflation takes a toll