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Retail Should Be Worried About This $8.8 Billion Problem

Trade flows essentially collapsed in November,” Wells Fargo economists Tim Quinlan and Shannon Seery wrote Thursday, pointing to an “$8.8 million pullback in consumer goods” spending that fueled declines across all major categories.

They were responding to U.S. Commerce Department data showing the trade deficit in November plunged by 21 percent to a seasonally adjusted $61.5 billion, representing a 26-month low since September 2020. In contrast, the gap in October was higher at $77.85 billion. The data, also published Thursday, isn’t adjusted for inflation.

Imports in November fell 6.4 percent to $313.4 billion, likely a sign of lower consumer holiday spending. Retailers still trying to clear out bloated inventories also cut orders to course correct from 2021’s mistakes.

Exports fell 2 percent to $251.86 billion, reflecting weaker demand for U.S. goods. While many see geopolitical concerns and higher inflation fueling a slowdown, slumping exports also reflect the strength of the U.S. dollar, which makes American-made goods more expensive to buy. The decline in exports represented the largest monthly decrease since April 2020, the height of the Covid-19 pandemic. “Prior to that you can only find a steeper monthly drop during the 2008/2009 global financial crisis,” the economists said.

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“While some volatile factors explain the sharp decline, broad weakness suggests the transition away from goods of domestic consumers may be starting to show up in import activity,” they continued. Crude oil imports also fell $1.7 million decline. The Wells Fargo report said domestic demand could falter in the second quarter.

International Monetary Fund (IMF) managing director Kristalina Georgieva expects “one third of the world economy” to be in a recession this year, she told CBS Sunday.

The conundrum for the Fed could be the nonfarm jobs report due out on Friday. The Fed raised rates seven times in 2022, although it seems more settled at half-point hikes instead of the 0.75 percent as it tries to hit its 2 percent inflation target.

ADP’s payroll report on Thursday showed that private employers added 235,000 jobs in December, outpacing above the projected 150,000 consensus estimate range. Job gains, led by consumer-facing service industries, were strong across small and medium businesses. In contrast, large firms shed 151,000 jobs.

Among the service sectors that saw gains, leisure and hospitality led the way with 123,000 new positions. The trade, transportation and utilities service group, which includes wholesale and retail merchandise sales, lost 24,000 jobs in November.

“The labor market is strong but fragmented, with hiring varying sharply by industry and establishment size. Business segments that hired aggressively in the first half of 2022 have slowed hiring and in some cases cut jobs in the last month of the year,” ADP chief economist Nela Richardson said.

ADP data don’t always jibe with the reports from the Labor Department as the two capture data and process it differently. Economists don’t expect to see a gain comparable to November’s 263,000 result. The December consensus range is closer to a 205,000 nonfarm payroll increase.

According to Wells Fargo economists Sarah House and Michael Pugliese, the “jobs market is hardly falling apart.”

“While the trend in layoffs is no longer improving, the need for workers remains historically strong,” they said.