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What to Make of November’s ‘Ugly’ Retail Report

American consumers are spending less than they did a month ago.

U.S. retail sales in November fell 0.6 percent to $689.4 billion from October. However, spending was up 6.5 percent from year-ago levels. Estimates are adjusted for seasonal variation and holiday and trading-day differences, but not for price changes.

The U.S. Census Bureau said on Thursday that retail trade sales fell 0.8 percent over the same time period, although it remained 5.4 percent higher than a year ago.

Sales at apparel and accessories stores fell 0.2 percent to $26.35 billion from $26.41 billion, while sales at department stores were down 2.9 percent to $10.9 billion from $11.3 billion. Sales at nonstore retailers—including online e-tailers—fell 0.9 percent to $109.1 billion from $110.1 billion. Sales at furniture and home furnishing doors declined 2.6 percent to $11.8 billion from $12.1 billion.

Economists at the Economic Group of Wells Fargo Bank N.A. didn’t like the November sales report, even as the National Retail Federation (NRF) trade group said the data showed “solid year-over-year growth that marked a strong start to the holiday season.”

“Consumers continued to spend on household priorities and holiday gifts for loved ones this November despite continued inflation and rising interest rates,” NRF president and CEO Matthew Shay said. “Consumers have been shifting back to in-store shopping for a more traditional holiday shopping experience, and we expect record participation for this year’s Super Saturday shopping weekend.”

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Noting an early start to holiday shopping in October, NRF chief economist Jack Kleinhenz said the “consumer remains surprisingly resilient” amid the squeeze from both inflation and higher interest rates. He added that the year-over-year comparison shows that the economy is not in a recession, and that “spending is on track to meet our expectations for a solid holiday season.”

NRF last month said it expects holiday retail sales during November and December to grow between 6 percent and 8 percent from 2021 levels to between $942.6 billion from $960.4 billion. Online and other non-store sales, which are included in the total forecast, were estimated to grow between 10 percent and 12 percent to between $262.8 billion and $267.6 billion.

“November’s retail sales report was ugly,” Wells Fargo economists Tim Quinlan and Shannon Seery concluded in a research note Thursday. “Sales in categories more reliant on credit started to turn and holiday sales categories flopped.”

The Wells Fargo report said that while consumer spending is expected to contract in 2023, it was too soon to conclude that a sustained decline in good spending has started. Yet, November’s report also represents the largest monthly decline of the year, the economists said.

The saving rate is near its all-time lows and higher financing costs are already having a negative impact on categories most reliant on credit. One category hard hit in November was the 2.6 percent drop in sales at furniture and home furnishings stores. The other category was auto dealers, which saw sales fall by 2.3 percent. In fact, the home category has been particularly hard hit lately. Last month saw the abrupt shutdown of United Furniture Industries, the planned shutdown of furnishings retailer Weekend Only Furniture and Mattress in January, and the collapse of Australian online furniture and home decor retailer Brosa into bankruptcy. In addition, the future of Bed Bath & Beyond remains uncertain, while mattress giant Serta Simmons could file for bankruptcy protection as early as next month, according to a Bloomberg report.

While consumers likely started their holiday shopping this year back in October, the overall level of sales at retailers that make up the Wells Fargo holiday sales estimate remains high, they said. Yet the economists concluded that the “decline in November suggests some consumer momentum may be starting to fizzle out.”

The economists expect holiday spending to rise 6 percent above year-ago levels.

David Silverman, a credit analyst at Fitch Ratings, said that while November retail sales show a still-resilient consumer, “some signs of softening are emerging after several years of strong retail gains. With weaker results centered around categories like consumer electronics, home furnishings and apparel and strength in bars/restaurants, we believe results demonstrate some retail buying fatigue and budget shifts to consumer services.”

And signs last month indicate that consumers are back to racking up their credit card balances, with U.S. household debt passing the $16 trillion mark in the second quarter of 2022.