Americans pulled back their spending at stores and restaurants in December amid the mounting toll of high inflation and concerns about the future of the economy, according to data released Wednesday by the Census Bureau.
U.S. retailers and restaurants made $677.1 billion in sales in December, down 1.1 percent from a revised November sales total of $685 billion, according to the Census Bureau. It was the second consecutive monthly decline in retail sales, which are adjusted for seasonal shifts but not inflation.
Falling sales may force retailers and restaurants to cut or stabilize prices, which will help take a bite out of inflation and keep price growth slowing down. But a prolonged drop in consumer spending — which drives roughly two-thirds of the U.S. economy — could be a sign of a looming slowdown or recession.
“The final retail sales report of 2022 was the weakest of the year,” Kayla Brunn, an economic analyst at Morning Consult, wrote in a Wednesday analysis.
When adjusted for inflation, “retail sales declined year-over-year – a development that is especially disappointing given that last December was being impacted by the spread of the omicron variant,” Brunn wrote.
The steady drop of gasoline prices in December drove part of the overall slump in retail sales last month. Sales at gasoline stations fell 4.6 percent last month even amid the rush of holiday travel, as lower global demand and easing energy supply constraints helped bring down prices at the pump.
Department stores also took a serious hit last month despite the promise of the holiday shopping season, with sales plunging 6.6 percent. Sales at furniture and home goods stores, auto dealers, clothing stores, electronics and appliance stores, and restaurants also fell in December.
Only sporting goods and hobby stores, building material and supply stores, and grocery stores saw sales increase in December.
“Consumers have shifted some of their spending towards services as Covid fear has subsided, but more recently we think people have become more cautious in the face of increased economic uncertainty and sharply higher borrowing costs,” wrote Ian Shepherdson, chief economist at Pantheon Economics, in a Wednesday analysis.
“We expect this softening trend to continue, especially if the looming slowdown in job gains makes people less willing to draw down savings accumulated during Covid.”
While the U.S. closed out 2022 with another strong month of job growth and relatively low layoffs, many economists expect the economy to keep slowing throughout 2023 — potentially into a recession.
Even so, Shepherdson warned against relying too much on one month of retail sales data given how often those figures are revised.
“The history of huge revisions to the initial sales data … makes it hard to be sure of the extent to which any downshift in today’s data is real rather than noise. The revisions are biased substantially to the upside, on average,” he explained.