Retail sales drop at start of key holiday shopping season
WASHINGTON — 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 decreased 0.6% between October and November, following a sharp 1.3% increase the previous month. This was according to the government on Thursday. The government reported that furniture, electronics, home and garden stores saw sales declines.
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. Although inflation has fallen from its four-decade high this summer, it is still high enough to threaten Americans’ spending power. The November price rise was 7.1% compared to a year ago.
” The weakness in sales… suggests higher borrowing costs and slower employment growth are now catching up to consumers,” said Andrew Hunter (senior U.S. economist, Capital Economics).
Consumer spending will likely continue to grow at a steady pace over the last three months of the year, Hunter stated, but he anticipates a sharp decline in spending early next year.
Monthly data can be volatile, and one negative report often follows a rebound.
Sales fell 2.3% at auto dealers and 0.6% at sporting good stores. General merchandise stores, which includes large chains like Walmart and Target, saw a 0.1% drop and 0.6% respectively. Online and catalog sales fell 0.9%.
The steep 2.5% drop in sales at garden and home stores is likely due to the rapid rise in interest rates in the U.S. that have made it more difficult for Americans to buy homes.
Americans have been able to keep up with rising costs thanks to solid hiring, rising wages, and increased savings due to government financial assistance during the pandemic. Many are now looking into their savings to maintain the same level in spending. In October, the saving rate fell to its second-lowest record level.
Americans also make more purchases with their credit cards. According to the Federal Reserve Bank of New York the total credit card debt rose 15% during the July-September quarter. This is the largest increase in 20 year.
Eric Cruz, a New Jersey Walmart employee, stated that he plans to reduce his holiday shopping budget by 20% this fiscal year to $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 looking for credit cards that offer higher rewards like 5% back on purchases to offset rising costs.
” I am looking for additional incentives and credit cards enable me to do this,” he stated.
Retailers have noticed signs of economic stress.
Craft supplies chain Jo-Ann Stores announced this week a halt in quarterly dividends to investors after comparable store sales fell by 8% in 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. Johnson stated that everyone is trying to grab wallet share by offering the best deals possible. “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 pointed out that people are spending less overall and almost everything is more expensive than 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.
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