In the latest report on monthly core retail sales in the US, the data revealed a disappointing actual increase of just 0.1%, well below the expected 0.3% growth. This follows a strong performance of 1.0% in the previous month, highlighting a marked slowdown in consumer spending.
The decline in core retail sales, which excludes volatile goods such as food and energy, suggests that consumers may be backing away from discretionary purchases, perhaps under the influence of ongoing economic uncertainty and inflationary pressures. This tepid performance may raise concerns about the sustainability of consumer demand in the current economic environment.
Friday’s report comes as retailers prepare to enter the all-important holiday shopping season in less than two weeks. Analysts expect a strong holiday shopping season, though not as strong as last year, with many shoppers under pressure from generally higher prices despite easing inflation.
The latest retail sales figures suggest that the economy is growing rapidly again in the current October-December quarter, after expanding at a strong annual rate of 2.8% in the previous quarter. Since peaking at 9.1% more than two years ago, inflation has fallen to 2.6%, not much higher than pre-pandemic levels. Americans’ net income, on average, exceeded inflation for about 18 months.
However, rising inflation after the pandemic left prices about 20% higher than they were three years ago and weakened Americans’ view of the economy. This was one of the main reasons why Donald Trump was able to capitalize on public discontent with the Biden-Harris administration and regain the White House in last week’s election.
The percentage of consumers expecting a recession in the next twelve months has fallen to its lowest level since the board first asked this question in 2022.
The slowdown in US monthly core retail sales and its impact on financial markets negatively
The latest core retail sales data in the US shows a significant slowdown, recording an actual increase of just 0.1%, compared to expectations of 0.3%. This weak performance points to a decline in consumer spending, which could portend negative effects on financial markets.
The decline in sales reflects economic uncertainty and inflationary pressures, which may lead to a decline in confidence in the economy. As retailers prepare for the holiday shopping season, investors expect spending to be less robust compared to last year, weighing on the performance of stocks in the retail sector.
In addition, this situation may lead to effects on the Fed’s policy outlook on interest rates, as consumer demand could dampen expectations of price increases, which could prompt the Fed to adopt a more cautious monetary policy.
Overall, this slowdown in retail sales is an important indicator that is likely to affect overall market trends and increase volatility in the coming period.
Some retailers say they expect consumers to spend more freely in the coming months. Affirm, a buy-now, pay later company that has been expanding as more consumers seek online installment loans, reported last week that growth in its active consumers accelerated for the third consecutive quarter to nearly 20 million.
Other recent economic reports have also pointed to a healthy economy. In a sign that households, whose purchases drive most of the economy, will continue to spend, the Conference Council’s latest consumer confidence index recorded its biggest monthly gain since 2021. The percentage of consumers expecting a recession in the next twelve months fell to its lowest level since the board first asked this question in 2022.
Michael Linford, chief operating officer at Affirm, told The Associated Press, “Everything we see indicates that the consumer feels like they want to go out spending.”
Positive outlook for US monthly retail sales during November and December
Core retail sales forecasts in the US may vary month-to-month (m/m) based on recent economic data and analyst expectations. According to the latest available information, analysts usually expect a range around 0.3% for the next report.
Investors and analysts are looking into the 2023 holiday shopping season, with the National Retail Federation predicting a significant increase in shopper spending of between 2.5% and 3.5% compared to the same period last year. The forecast comes at a time when the U.S. economy is experiencing some challenges, including persistent inflation and price pressures, but the data suggests a certain resilience in consumer behavior. During the previous holiday shopping season, a greater rise in spending of 3.9% was recorded than in 2022, reflecting consumers’ ability to adapt to economic conditions.
The effects of the hurricane and warm weather across the U.S. are likely to have an impact on this report by boosting places to eat and drink and harm furniture and clothing, but the underlying trend remains steady.
This outlook is positive, suggesting that U.S. households are still willing to spend on gifts and consumer goods during the holiday period. This trend may reflect consumers’ desire to enjoy celebrations and social activities, despite economic challenges. Different categories of stores, including e-commerce and traditional retailers, are expected to boost this spending, which will have a significant impact on the overall performance of the economy.
Despite the challenges, the holiday shopping season is an important opportunity for retailers to boost their sales and make profits. Ultimately, this season’s results will show the economy’s resilience to pressure, which could help shape future spending trends.
