Business
U.S. Inflation Takes Its Toll On December Retail Sales, Which Fall 1.1%
(CTN NEWS) – NEW YORK – In December, Americans reduced their spending for the second month, highlighting how inflation and the increased cost of using credit cards hindered consumer activity during the important holiday shopping season.
The Commerce Department said on Wednesday that retail sales decreased in December by a worse-than-anticipated 1.1% after November’s decline was revised to 1%.
Retail sales increased by 1.3% in October because of early holiday shopping.
Rising vehicle loan interest rates caused a fall in auto sales. Overall retail sales were reduced due to this and declining petrol costs. The December result represented the year’s largest monthly fall.
To combat rising expenditure and inflation, the Fed hiked its benchmark interest rate for the seventh time in 2022 in December.
Retail sales decreased by 0.7% when auto and petrol sales were excluded. Contrary to many other government reports, the data on retail sales are not adjusted for inflation. Sales are increased by higher prices and decreased by reduced pricing.
Due to last year’s supply chain disaster, an early start to the holiday shopping season may also have reduced December spending.
Also on Wednesday, the National Retail Federation, the largest retail association in the country, said that, based on its calculations of the official data, holiday sales in November and December increased by a weaker-than-expected 5.3%.
Compared to the 2021 Christmas season, when sales increased by 13.5%, it was a sharp deceleration.
“Cracks are developing in the resiliency consumers exhibited in 2022,” Moody’s Vice President Mickey Chadha said. “Higher prices, increasing interest rates, and the uncertainty of the macroeconomic situation ultimately take their toll.”
Consumer spending has been sustained thus far by low unemployment and wage growth, but according to Chadha, Moody’s anticipates that consumers will become more “selective” in their purchasing during the first half of the year.
The event supplier Party City, which filed for Chapter 11 bankruptcy protection on Tuesday, is one retailer that this has severely impacted. However, it is almost universally felt.
Data released on Wednesday showed that sales at furniture and home furnishing retailers fell by 2.5%, while those at electronics and appliance stores fell by 1.1%.
Additionally, department retailers had a 6.6% fall. Online merchants’ sales dropped 1.1%. The restaurant business also declined. Food price increases have slowed down, and sales last month increased slightly.
Most Americans could keep up with rising prices thanks to strong hiring, rising salaries, and savings bolstered by government financial assistance during the pandemic.
But since that government aid has long ago gone, some Americans have taken money out of their savings. Credit card defaults are increasing as some households struggle to change their spending habits to reflect the changing economic climate.
Although salaries are rising and the labor market remains a foundation of the American economy, this poses a challenge for the Federal Reserve, which must restrain spending and hiring to keep inflation under control.
At least for the time being, inflation does seem to be declining. The sixth month of reductions saw inflation drop to 6.5% in December.
Prices decreased by 0.1% from November to December every month, the first decrease since May 2020.
Consumer reaction against growing prices has compelled retailers to lower prices to move inventory.
This month, Macy’s downgraded its quarterly sales forecast, and Lululemon warned that profit margins would be constrained in the fourth quarter.
The information on major retailers’ fourth-quarter results, including Walmart and Target, will be public next month.
The National Retail Federation’s top economist, Jack Kleinhenz, anticipates that businesses will manage inventory more carefully in 2023 after being obliged to provide steep discounts the previous year.
According to Kleinhenz, they will likely exercise extreme caution as a result of what transpired.
This week, Petco CEO Ron Coughlin told the AP that although there has been a slight thaw as prices have stabilized, consumers had pulled back on items like toys for their pets. Coughlin still intends to handle inventory with caution.
No recession, a light recession, or a severe recession—whatever the case, “we are making sure we are ready for every eventuality that arises,” Coughlin added.
It must be said that the proper goods that consumers are looking for must be available at the same moment.
The retail data, issued on Wednesday, only accounts for approximately a third of total consumer expenditure and excludes items like haircuts, hotel stays, and travel-related expenses.
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