Purchases in stores, restaurants and online fell a seasonally adjusted 1.1% month-on-month in December, the Commerce Department said on Wednesday. Sales were also revised down in November and have fallen in three of the last four months. The department seasonally adjusts the monthly data to make it comparable over time. On an unadjusted basis, December is typically the busiest month of the year in terms of sales.
A Federal Reserve report on Wednesday showed that economic activity started the year relatively flat and companies are pessimistic about growth in the coming months. A separate Fed report showed that US industrial production slumped in December, led by weakness in manufacturing. A Labor Department report showed that inflation was cooling.
Shares fell on Wednesday following the data release. The S&P 500 lost 1.6%. The Dow Jones Industrial Average fell 1.8% while the Nasdaq Composite Index lost 1.2%. The yield on the benchmark 10-year Treasury fell 0.16 percentage points to 3.374%.
The latest data reinforces signs that the US economy is slowing as the Fed hikes interest rates to fight inflation. Hiring and wage growth slowed in December, US trade with the rest of the world fell sharply in November and existing home sales are down for 10 straight months.
S&P Global downgraded its estimate for fourth-quarter economic growth by half a percentage point to an annual rate of 2.3% on Wednesday. Economists polled by the Wall Street Journal this month expect higher interest rates to push the US economy into recession in the coming year.
“With the lagging effect of elevated inflation weighing heavily on US households, it is very clear that the middle American consumer is still suffering from inflation-adjusted wage losses,” said Joseph Brusuelas, chief economist at RSM US LLP. “We are heading towards what is likely to be a mild recession in 2023,” he added.
Federal Reserve Bank of St. Louis President James Bullard said Wednesday that the central bank should keep raising interest rates quickly, and supported a half-percentage-point hike Jan. 31-Feb. 1 meeting.
“We want to err on the tighter side to ensure the disinflationary process takes root in the economy,” he said at a live Wall Street Journal event.
Mr. Bullard’s position is at odds with several of his colleagues who have suggested that a slower pace of rate hikes would be in order for Fed officials to gauge how their aggressive pace of monetary tightening has affected the economy.
Inflation, while still at historically high levels, is showing signs of cooling as demand weakens. Contrary to many government reports, retail sales are not adjusted for inflation.
Consumer prices rose 6.5% year-on-year in December, the sixth straight month. The producer price index, which broadly reflects supply-side conditions in the economy, fell month-on-month in December and rose at the slowest annual pace since March 2021, the Labor Department said on Wednesday.
The National Retail Federation said Wednesday’s holiday sales were disappointing. The trade group said sales for November and December rose 5.3% from the year-ago period to $936.3 billion. In November, NRF said it expected holiday sales to rise between 6% and 8%. The NRF figures are not adjusted for inflation and exclude fuel, car and restaurant spending.
Slightly slower year-end inflation couldn’t offset weaker demand, NRF chief economist Jack Kleinhenz said.
Consumers “are being hit by higher food prices, they’re being hit by higher service prices and they have choices to make,” he said. Some spending was likely dragged into October as retailers closed deals earlier this year, he added. Retailers reduced heavily and early to remove excess inventory from their shelves and warehouses.
Boston’s Zach Carney said he reduced eggs and red meat because prices were so high. “The price of eggs really catches your eye,” said the 28-year-old publicist. Instead, he’s stocked up on cheap packets of chicken and bought more private-label cereal and olive oil that cost less than national brands.
In 2021, officials thought high inflation would be temporary. But a year later, it was still near a four-decade high. WSJ’s Jon Hilsenrath discusses factors that have kept inflation higher than expected. Image: Jacob Reynolds
The retail sales report showed spending fell in a number of gift categories in December, including electronics, clothing and department stores, as well as online retailers, a category that includes companies like Amazon.com Inc.
Eating in bars and restaurants fell by 0.9% in December. Both furniture and vehicle sales, which are sensitive to higher borrowing costs, fell sharply. The only categories to post modest growth in December were grocery, sporting goods and hardware as winter storms battered many parts of the US
Some retailers have said that the recently completed holiday shopping season was weaker than expected. Macy’s Inc. warned of weaker sales and Lululemon Athletica Inc. said its profit margins were squeezed as shoppers bought more items on sale.
Many retailers had benefited from rising sales early in the pandemic as shoppers stocked up on everything from toilet paper to home electronics to furniture, helped by government stimulus dollars. Those tailwinds have faded, leaving retailers and product manufacturers to face slower spend in some categories and longer-term industry dynamics, such as: B. A gradual shift to online editions.
Apparel retailers are particularly vulnerable to the current decline in discretionary spending, said Kelly Pedersen, head of US retail at PwC, a consulting firm. “Buying fashion items in department stores is optional,” said Mr. Pedersen. Many clothing retailers are still working to sell excess inventory and offer deep discounts when demand is weak, he said.
Department stores, which saw sales fall 6.6% in December, struggled to boost sales before the pandemic quickly shifted shopping habits. In 2020 a number of department stores filed for bankruptcy including Lord & Taylor, JC Penney Co., Neiman Marcus Group Ltd. and Stage Stores Inc.
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Party City Holdco Inc. filed for Chapter 11 bankruptcy this week, noting that inflationary pressures have hampered customers’ willingness to buy. Bed Bath & Beyond Inc. announced this month that it plans further layoffs and cost-cutting amid falling sales.
The Retail Sales Report provides an incomplete picture of consumer demand as it does not include spending on many services such as travel, housing and utilities. The Department of Commerce will release December budget spending figures for goods and services later this month.
The company reports published in February complete this picture. Walmart Inc., Target Corp. and other large retailers, which sell a variety of goods including groceries, clothing and decor, will report quarterly earnings next month that will include December sales.
—Suzanne Kapner and David Harrison contributed to this article.
Write to Harriet Torry at [email protected] and Sarah Nassauer at [email protected]
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