Retail Sales Drop at Start of Key Holiday Shopping Season
WASHINGTON (AP) — Americans cut back sharply on retail spending last month as the holiday shopping season began with high prices and rising interest rates forcing families, particularly lower income households, to make harder decisions about what they buy.
Retail sales fell 0.6% from October to November after a sharp 1.3% rise the previous month, the government said Thursday. Sales fell at furniture, electronics, and home and garden stores.
Consumer spending has been resilient ever since inflation first spiked almost 18 months ago, but the capacity of Americans to continue spending in a period of high inflation may be beginning to ebb. Inflation has retreated from the four-decade high it reached this summer but remains elevated, enough to erode the spending power of Americans. Prices rose 7.1% in November from a year ago.
“The weakness in sales comes despite the boost to real incomes from the continued sharp falls in gasoline prices in recent weeks, and suggests that higher borrowing costs, slower employment growth and an unusually low saving rate are now catching up with consumers,” said Andrew Hunter, senior U.S. economist at Capital Economics.
Consumer spending is still likely to grow at a solid pace in the final three months of the year, Hunter said, but he expects a sharp drop early next year.
Sales plunged 2.3% at auto dealers, and slipped 0.6% at sporting goods stores and 0.1% at general merchandise stores, a category that includes large chains such as Walmart and Target. Sales at online and catalog stores fell 0.9%.
The steep 2.5% decline in sales at home and garden stores likely reflects the sharp decline in home sales due rapid interest rate hikes in the U.S., which have put homes increasingly out of reach for more Americans.
Solid hiring, rising pay, and enhanced savings from government financial support during the pandemic have enabled most Americans to keep up with rising prices. Yet many are now digging into their savings to maintain the same level of spending. The saving rate declined to its second-lowest level on record in October.
Americans are also putting more purchases on their credit cards. Total credit card debt jumped 15% in the July-September quarter, according to the Federal Reserve Bank of New York, the biggest jump in 20 years.
The low- to middle-income shopper is starting to show signs of stress. Craft supplies chain Jo-Ann Stores Inc. said Tuesday it is pausing its quarterly dividend after seeing its shopper pull back this fall. Sales at stores opened at least a year fell 8% in the quarter ended Oct. 22.
“It’s clear that consumers are increasingly pressured by inflation and are being more selective with their purchases in the current holiday season, prioritizing household essentials over many discretionary activities,” said Wade Miquelon, Jo-Ann’s president and CEO. “These budget-conscious consumers have been under a prolonged period of stress for many months now, and they are getting more selective.”
However, the good news, Miquelon said, is that inflationary trends are subsiding even as the U.S. potentially heads into “something more typical of a recessionary environment in the short term.”
Black Friday weekend, which kicks off the holiday shopping season, was strong this year, said Sonia Lapinsky, managing director in the retail practice at consultancy AlixPartners.
Yet, Lapinsky noted, people are buying less overall as goods become more expensive.
“Inflation is going to continue to put pressure on the wallet, ” Lapinsky said. “I think consumers are going to hunker down.”
By AP reporters Christopher Rugaber and Anne D’Innocenzio