US consumers pulled back their spending last month as inflation took a toll

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US retail sales fell sharply at the start of the holiday shopping season, dropping by 0.6% during the month of November, according to data released Thursday by the Commerce Department.

Pullbacks in auto sales helped drive the decline — the largest monthly decrease seen all year — but even excluding autos, monthly sales declined by 0.2%, despite cooling inflation.

Economists had expected monthly sales to shrink by 0.1%, down from October’s 1.3% increase, according to consensus estimates on Refinitiv.

Retail sales, which are not adjusted for inflation, were up 6.5% in November from the year prior, according to the report. That’s the slowest year-over-year retail sales growth since 2020, said Ted Rossman, senior industry analyst for Bankrate.

“There’s not a lot of strength in this report,” he said in a statement. “Nine of 13 categories fell on a month-over-month basis, and big-ticket purchases look especially shaky.”

Some of the largest monthly declines were in furniture (down 2.6%), building materials (down 2.5%) and motor vehicles and parts (down 2.3%), according to the Commerce Department report.

October’s retail sales report showed a surprise monthly increase of 1.3% and annual gains of 8.3%, which could indicate that consumers were pulling forward some of their holiday shopping, said Scott Baker, an associate professor of finance at Northwestern University’s Kellogg School of Management.

Consumer spending has persisted despite inflation, rising interest rates and fears of a recession. A strong labor market combined with continued post-pandemic pent-up demand, falling energy prices and smoother supply chains have helped to keep the cash registers ringing.

However, there are signs that could be shifting as the Federal Reserve’s unprecedented streak of seven consecutive interest rate hikes to tackle inflation are slowing areas of the economy.

“There’s been this huge amount of pent-up demand and pent-up balance sheet strength that has been starting to unwind, but I think nobody’s quite sure when that’s going to end … and if that residual cash will carry through Christmas,” Baker said.

That increases the risks of the Fed overshooting on its monetary policy tightening efforts to bring down inflation, he added.

“And then consumers get tapped out at the same time that rates are going up a lot,” he said. “Credit card rates going up could cause more of a contraction, but hopefully [the Fed] gets a nice feather landing.”

This story is developing and will be updated.


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