Americans cut spending in December for the second month in a row, highlighting how inflation and the rising cost of using credit cards dampened consumer activity during the crucial holiday shopping season.
Retail sales fell 1.1% in December — worse than expected — after a revised 1% drop in November, the Commerce Department reported Wednesday. In October, retail sales rose 1.3%, partly due to early Christmas sales.
Car sales fell as rising interest rates for loans reduced demand. That, and the decline in the price of gasoline, contributed to the decline in retail sales overall. The December figure represents the biggest monthly drop in 2022.
The Federal Reserve raised its key interest rate in December for the seventh time in 2022 just to try to tame spending and inflation.
Excluding auto and gasoline sales, retail sales fell 0.7%. Retail sales are not adjusted for inflation like other government reports. Higher prices increase sales, while lower prices decrease them. Spending in December may also have fallen because Christmas shopping started earlier after last year’s supply chain chaos.
Also on Wednesday, the National Retail Federation, the country’s largest retail group, said Christmas sales in November and December rose 5.3%, less than expected, according to its calculations of government figures. It was a drastic drop compared to the 2021 holiday season, when sales increased 13.5%.
“Cracks are appearing in the resilience that consumers have shown in 2022 as higher prices, interest rate increases and the uncertainty of the macroeconomic environment finally take their toll,” said Mickey Chadha, Moody’s vice president.
Low unemployment and rising wages have supported consumer spending so far, but Chadha said Moody’s expects consumers to become increasingly “selective” in their spending in the first half of the year.
