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Here’s What Sales Were Really Like in December

Are consumers tapped out?

U.S. retail sales in December fell 1.1 percent to $677.1 billion from the prior month, but was up 0.6 above December 2021, the U.S. Census Bureau reported on Wednesday.

The decrease was lower than the consensus 0.9 percent decline economists expected. The figures reflect adjustments for seasonal variation and holiday and trading-day differences, but not price changes. In addition, the October to November 2022 percent change was revised from down 0.6 percent to down 1.0 percent. After factoring in the prior month’s revised data, overall sales were even lower than reported. December’s retail sales report reflects the third straight month of declines for general merchandise sales.

Retail trade sales fell 1.2 percent from November, but were up 5.2 percent above December 2021. Sales at apparel and accessories stores dipped to $26.04 billion from $26.11 billion in November. Department store sales fell 7.0 percent to $10.19 billion from $10.9 billion. Sales at furniture and home furnishings stores were down 2.0 percent to $11.50 billion from $11.8 billion. Nonstore retailers saw their sales slip 1.0 percent to $109.36 billion from $110.63 billion.

Falling gas prices helped inflation slow in December for the third straight month. But now more consumers could be feeling the pinch.

“Slowing inflation was not enough to offset slowing demand. Look for more weakness as excess savings and recent real income gains fade,” Wells Fargo economists Tim Quinlan and Shannon Seery wrote in a research note Wednesday.

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The economists, noting that December was “another ugly month for retail sales,” said that with consumer goods prices slipping 1.1 percent in December for the fifth decline in six straight months, the estimate for “real” retail sales was likely flat in the month.

They also noted that holiday sales fell 0.6 percent during December, calling it a “tough finish to the holiday season.” But in real terms, holiday sales likely eked out a 1.2 percent gain last year, the economists said.

Meanwhile, National Retail Federation (NRF) said on Wednesday that November-December 2022 retail sales rose 5.3 percent to $936.3 billion. That fell short of its forecast for 6 to 8 percent growth over 2021, or $942.2 billion to $960.4 billion. Included in the estimate was a projection for online sales to rise between 10 to 12 percent to between $262.8 billion and $267.6 billion. NRF didn’t adjust for inflation.

Looking ahead to consumption in 2023, the Wells Fargo economists said that while pandemic-era stimulus and excess cash boosted goods consumption over the past few years, “we expect it’s becoming more challenging for consumers to maintain such a robust pace of spending.”

As for how this impacts retailers, the verdict is still out.

“December retail sales headlines were somewhat disappointing, although perhaps not as bad at first blush,” said David Silverman, Fitch’s senior director and credit analyst. “We continue to expect retail sales volumes to decline low- to mid-single digits in 2023, with overall sales closer to flat given some inflation. Consumer health remains relatively strong, albeit softening somewhat from historically robust levels, and we expect consumers to continue shifting purchasing to services like travel and entertainment and away from goods, where volume is still up over 20 percent from pre-pandemic levels.”

Retailers’ fourth-quarter earnings reports in the weeks ahead will offer a better sense of just how much they have to dangle promotions to drive sales, as well as what the inventory situation is like heading into 2023 following last year’s well-documented glut, Silverman pointed out.

The Conference Board’s Consumer Confidence Index for January is due out at the end of the month. That coupled with Q4 retail reports should provide some insight into the consumer mindset early in the new year.

In another sign that inflation is cooling off, wholesale price increases fell 0.5 percent in December, according to the Producer Price Index (PPI), the U.S. Bureau of Labor Statistics said on Wednesday.

The PPI measures what businesses pay for goods and services across multiple categories. December’s decline was the biggest monthly decrease since April 2020, thanks in part to falling energy prices. What isn’t clear is whether those declines at some point translate to lower retail prices for shoppers. Presuming the declines continue, that could take some time to work through the retail channel, while increases in energy and transportation could serve to offset any gains.