Retail sales continued to slump in December as consumer spending dropped off at the end of the year.
- Consumer spending trended downward at the end of 2022, particularly in automobiles—causing the greatest monthly decline in retail sales last year.
- Retail sales declined 1.1% in December—the most significant decrease since December 2021.
- Holiday shopping was still strong, but consumers likely began shopping earlier in the year, spreading out their purchases over several months rather than focusing on December.
- In early 2022, consumer spending remained strong despite inflation, but the recent slump hints at a slower economy heading in to 2023.
- As retail sales fell, manufacturing output also declined. December had the largest drop in manufacturing recorded in two years.
Why it’s news
Lessening demand and waning inflation could lead the Federal Reserve to scale back its aggressive interest-rate hikes. The Fed will likely not stop the hikes altogether as the labor market is still tight, but slower economic growth could mean less aggressive maneuvering. As spending slows, the risk of a recession in the next year grows more likely.
December is typically a major holiday spending month. However, shoppers apparently spread out their purchases over the months leading up to Christmas as they took advantage of sales and tried to spread out their spending.
Restaurant, bars, and gas station sales were also down, potentially due to cold weather that drove many probable shoppers indoors. Higher interest rates have also affected spending. Credit cards with higher interest rates have discouraged shoppers from taking home items they would typically use financing to purchase.
Vehicle sales, in particular, took a hit in December, declining 1.2%. Furniture sales fell by 2.5%, service stations by 4.6%, and online retail by 1.1%. Electronics, clothing, and general merchandise stores also saw a slight decline.
Hobby stores like sporting goods and musical instruments retailers bucked the norm with a slight gain in sales over December. Construction and gardening stores also gained, Reuters reports.