Retail Sales Fall More Than Expected

U.S. retail sales fell more than expected in November, likely payback after surging in the prior month.

The Commerce Department said on Thursday that retail sales dropped 0.6% last month. Data for October was unrevised to show sales accelerating 1.3%. Economists polled by Reuters had forecast sales dipping 0.1%.

Retail sales are mostly goods and are not adjusted for inflation. Last month’s decline in sales suggests holiday shopping was pulled forward into October. Motor vehicle shortages also depressed sales at auto dealerships.

The boost from one-time tax refunds in California, which saw some households receiving as much as $1,050 in stimulus checks in October and Amazon’s second Prime Day faded last month. Other factors which hurt sales included the rotation in spending back to services and discounting by retailers eager to lure cash-strapped consumers to clear unwanted inventory.

High inflation and rising interest rates are squeezing household budgets, though consumer spending has remained resilient, thanks to a strong labor market. Consumers have also been drawing down savings to fund purchases. The saving rate was at 2.3% in October, the lowest since July 2005.

The Federal Reserve on Wednesday raised its policy rate by half a percentage point and projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023. This rate has been hiked by 425 basis points this year from near zero to a 4.25%-4.50% range, the highest since late 2007.

Excluding automobiles, gasoline, building materials and food services, retail sales slipped 0.2% last month. Data for October was revised lower to show these so-called core retail sales increasing 0.5% instead of 0.7% as previously reported.

Core retail sales correspond most closely with the consumer spending component of gross domestic product.

The weakness in core retail sales is likely to be offset by gains in services outlays, keeping consumer spending and the overall economy on a moderate growth path this quarter. The economy grew at a 2.9% annualized rate in the third quarter after contracting in the first half of the year.

Consumer spending continues to be underpinned by labor market tightness, which is keeping wages elevated.