Retail sales fell even further in December as shoppers battled inflation

Jan 18, 2023, 7:04 AM | Updated: 3:22 pm
A customer pumps gas at an Exxon gas station, Tuesday, May 10, 2022, in Miami. U.S consumers have s...
A customer pumps gas at an Exxon gas station, Tuesday, May 10, 2022, in Miami. U.S consumers have so far defied higher prices for gas, food, and rent and have been spending more in 2022, providing crucial support to the economy. How long that can continue will be one of the key factors affecting the economy and inflation this year. (AP Photo/Marta Lavandier)
(AP Photo/Marta Lavandier)

Listen at 4:15 p.m.: Are Americans dialing back their spending?

    (CNN) — It was a ho-hum end to 2022 for spending in America.

US retail sales continued their fall in December, dropping by 1.1% as inflation remained high, the Commerce Department reported Wednesday.

That’s the largest monthly decline since December 2021, and practically every category (except for building materials, groceries and sporting goods) saw sales drop from the prior month.

Economists had expected sales to fall by just 0.8% for the month, according to Refinitiv. The November number was revised down to -1%.

All in all, the final retail sales report for 2022 shows a muted finish to a holiday season that crept even further into October versus the traditional late-November and December.

October was the last strong retail sales month of 2022, as discounting and slowing inflation prompted consumers to shop more then, said Kayla Bruun, economic analyst at Morning Consult.

“I think the hope was that this was going to lead to a little bit more momentum heading into the holiday season,” she said. “But really, it turned out to be more of just an early bump that actually took away from some of the spending that otherwise might have happened in November and December.”

The Commerce Department’s retail sales data is not adjusted for inflation, which reached a 40-year high in June before falling during the second half of 2022, hitting 6.5% for the 12-month period ending in December, according to the latest Consumer Price Index reading released last week.

Wholesale price growth is also cooling significantly: The Producer Price Index for December measured 6.2%, according to Bureau of Labor Statistics data released Wednesday.

During the November and December holiday season, retail sales grew 5.3% over 2021 to $936.3 billion, the National Retail Federation reported Wednesday.

The holiday total, which is not adjusted for inflation and excludes sales at auto dealerships, gas stations and restaurants, falls short of the trade association’s projections of 6% to 8% holiday sales growth.

“We knew it could be touch-and-go for final holiday sales given early shopping in October that likely pulled some sales forward plus price pressures and cold, stormy weather,” said Jack Kleinhenz, NRF’s chief economist, in a statement. “The pace of spending was choppy, and consumers may have pulled back more than we had hoped, but these numbers show that they navigated a challenging, inflation-driven environment reasonably well. The bottom line is that consumers are still engaged and shopping despite everything happening around them.”

Potential slowdown ahead

Consumer spending has remained robust despite inflation, rising interest rates and recession fears. However, some economic data suggests that activity may be losing some steam and that Americans are running out of dry powder.

“I think the consumers has gotten very active in managing their household budget and what they’re willing to spend on,” said Matt Kramer, KPMG’s national sector leader for consumer and retail. “They’re spending more time looking for the deals and being thoughtful about when they make purchases.”

That’s seen in the monthly sales declines in categories like motor vehicles, which were down 1.2% from November; furniture, down 2.5%; and electronics, down 1.1%, according to Wednesday’s report.

“Certainly on those large purchases, financed purchases where interest rates play in, the consumers are pushing those decisions out and extending their buying cycles around the larger categories,” he said.

The next few months are traditionally the slowest for retailers, but headwinds like credit card debt and stubborn inflation may exacerbate that, said Ted Rossman, senior industry analyst for Bankrate.

“A further slowdown in purchasing appears likely, at least in the near-term,” Rossman said in a statement.

Keeping a close watch on services spending

Discretionary spending is usually the first to go, with people typically cutting back on travel, eating out and other expenditures, said Amanda Belarmino, assistant professor of hospitality at the University of Nevada Las Vegas.

However, the post-pandemic pent-up demand that fueled strong services spending in 2022 is still going strong. Spending on food services and drinking places was up 12.1% in December from the year before.

“What we’ve seen in restaurants, tourism, hospitality is completely contrary to what we normally see in an economic slowdown,” Belarmino said. “We have seen consumers continue to make that spending. But where you’re seeing those slowdowns are things like people canceling their streaming services, canceling their Peloton, canceling their home services. So it seems that consumers are making those trade-offs.”

However, shifts in tipping activity could be harbinger of shifts to come.

“The average tip rate in the US had gone up to about 18% to 20%, and there are some indicators that’s going to be falling back down toward the 15% range,” Belarmino said. “It’s not a huge thing, but it’s a way for consumers to save money.”

How spending activity holds up in the service industries will be a critical indicator in the coming months, Morning Consult’s Bruun said, adding that a strong labor market should help to prevent a dramatic collapse in spending.

“That has been the component of consumer spending that’s been driving growth,” she said. “And it’s going to need to, going forward, because we’ve really seen that goods demand has been tapped out to a large extent.”

™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

Today’s Top Stories

Business + Economy

A customer pumps gas at an Exxon gas station, Tuesday, May 10, 2022, in Miami. U.S consumers have s...
Adam Small

Utah gas prices spike, Governor blames regional supply

Gas prices continue to go up around the country but the prices in Utah tend to be higher that than national average. Gov, Cox addressed the surge earlier this week. Utah is running nearly 25 cents higher than national.
21 hours ago
After years of Provo, Utah, residents driving to Orem to shop at a large Target, their dream of hav...
Cassidy Wixom

Full-sized Target coming to former Dillard’s at Provo’s Towne Centre

Real estate firm Brixton Capital announced Monday that a new Target will occupy the former Dillard's building at Provo Towne Centre.
21 hours ago
quit their jobs...
PAUL WISEMAN AP Economics Writer

US added a strong 517,000 jobs in January despite Fed hikes

The Fed is aiming to achieve a "soft landing" — a pullback in the economy that is enough to tame high inflation without triggering recession.
5 days ago
Multiple dollar bills are pictured, social security will see a bump...
Mark Jones

Eyeing retirement: How much money is enough after you leave a job?

How do you know when it's time to leave a job or if you'll have enough for retirement? Dave and Dujanovic talk to a financial planner about this important question.
6 days ago
interest rate...
Curt Gresseth

Interest rate ticks up. Time to tame your debt.

The chief financial analyst for joins the show to talk about the rising interest rate and how you can get out from under the debt you have accumulated.
6 days ago
The main reason small businesses fail in America is that the business owner doesn't have access to ...
Simone Seikaly

Lack of access stands between Black-owned businesses and success

But lack of access to money isn't the only thing that hinders Black-owned business in Utah and across the nation.
7 days ago

Sponsored Articles

Skier being towed by a rider on a horse. Skijoring....
Bear Lake Convention and Visitors Bureau

Looking for a New Winter Activity? Try Skijoring in Bear Lake

This article about skijoring is sponsored by the Bear Lake Convention & Visitors Bureau. Participate in Skijoring the Bear on February 20th, 2023.  What is skijoring? Skijoring is when someone on skis is pulled by a horse, dog, animal, or motor vehicle. The driver leads the skiers through an obstacle course over jumps, hoops, and […]
Banner with Cervical Cancer Awareness Realistic Ribbon...
Intermountain Health

Five Common Causes of Cervical Cancer – and What You Can Do to Lower Your Risk

January is National Cervical Cancer Awareness month and cancer experts at Intermountain Health are working to educate women about cervical cancer, the tests that can warn women about potential cancer, and the importance of vaccination.
Kid holding a cisco fish at winterfest...
Bear Lake Convention and Visitors Bureau

Get Ready for Fun at the 2023 Bear Lake Monster Winterfest

The Bear Lake Monster Winterfest is an annual weekend event jam-packed full of fun activities the whole family can enjoy. This year the event will be held from January 27-29 at the Utah Bear Lake State Park Marina and Sunrise Resort and Event Center in Garden City, Utah. 
happy friends with sparklers at christmas dinner...

15 Easy Christmas Dinner Ideas

We’ve scoured the web for you and narrowed down a few of our favorite Christmas dinner ideas to make your planning easy. Choose from the dishes we’ve highlighted to plan your meal or start brainstorming your own meal plan a couple of weeks before to make sure you have time to shop and prepare.
Spicy Homemade Loaded Taters Tots...

5 Game Day Snacks for the Whole Family (with recipes!)

Try these game day snacks to make watching football at home with your family feel like a special occasion. 
Happy joyful smiling casual satisfied woman learning and communicates in sign language online using...

The Best Tools for Deaf and Hard-of-Hearing Workplace Success

Here are some of the best resources to make your workplace work better for Deaf and hard-of-hearing employees.
Retail sales fell even further in December as shoppers battled inflation