Retail sales fall more than expected as spending and inflation cool

REAL ECONOMY BLOG | December 15, 2022

Authored by RSM US LLP

Retail sales in November posted the sharpest decline of the year, falling by 0.6% as shoppers pulled back from holiday spending, the Commerce Department reported on Wednesday.

Early shopping in October and falling prices were important factors that contributed to the pullback, which exceeded analysts’ expectations.

Many companies with excess inventories had offered holiday discounts earlier than usual, explaining the spike in monthly sales of 1.3% in October.

More discounts, though, mean lower prices for goods purchased. After controlling for price changes, the decline was cut in half, to 0.3% on the month.

The control group—which excludes volatile categories like food services, gasoline, autos and building materials—fell by 0.2% on both nominal and real terms, according to our estimates.

The average of the control group in the first two months of the last quarter fell to 0.1%, adding some downside risk to our forecast of 1.5% growth in gross domestic product for the year’s final quarter.

The decline in sales was broad-based, with eight out of 12 categories registering a decline on the month. Autos, furniture and building materials posted the largest declines, falling by 2.3%, 2.2% and 2.5%, respectively. The three categories accounted for more than a quarter of total sales.

Food and beverage at both stores and restaurants continued to climb at 0.8% and 0.9%, respectively, reflecting the persistence of food inflation.

But advanced sales data can fluctuate because it is subject to both revisions and unusual seasonal factors, which have been more pronounced during the pandemic.

The takeaway

With consumers sitting on more than $1 trillion in excess savings and wages still strong, we expect retail sales to remain afloat in the next couple of months. Only in the second half of next year, when a recession likely arrives, do we do expect sales to decline in a meaningful way.