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.
Americans’ 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 ... 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.
Monthly sales data can be volatile and one negative report is often followed by a rebound, other economists said.
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.
Shopping at a Walmart in New Jersey, Eric Cruz, said he planned to cut his holiday shopping budget by roughly 20% this year, to about $800. The 33-year-old Jersey City entrepreneur said rising costs for utilities and rent now take a bigger chunk of his income. He is trying to offset rising costs by seeking out credit cards with greater rewards, like 5% back on spending.
“I am looking for extra incentives and credit cards allow me to do that,” he said.
Symptoms of economic stress are beginning to appear, retailers have noted.
Craft supplies chain Jo-Ann Stores this week announced a pause in quarterly dividends for investors after comparable store sales fell 8% during its most recent quarter, which ended in October.
“Budget-conscious consumers have been under a prolonged period of stress for many months now, and they are getting more selective,” said CEO Wade Miquelon.
Miquelon said, however, that inflation is subsiding even as the U.S. potentially heads into “something more typical of a recessionary environment in the short term.”
Overstock, the online retailer that sells a lot of furniture, began promoting holiday items as early as October this year to pull in cautious shoppers, said CEO Jonathan Johnson.
“Everyone is competing for wallet share by offering the best deals they can offer,” Johnson said. “Customers continue to look to stretch their dollars as far as possible.”
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 with almost everything more expensive than it was last year.
“Inflation is going to continue to put pressure on the wallet,” Lapinsky said. “I think consumers are going to hunker down.”
D’Innocenzio reported from New York.