West News Wire: Although retail sales in the United States declined more than forecast in November, consumer spending was nonetheless supported by a strong labor market last week, when the number of Americans applying for unemployment benefits dropped to its lowest level in five months.
As Americans began their holiday shopping early to take advantage of discounts offered by firms seeking to get rid of surplus inventory, sales rose in October, which is likely why the Commerce Department on Thursday recorded the greatest drop in retail sales in 11 months.
However, the weaker-than-expected sales indicated that rising borrowing prices and the potential for a soon-to-come recession were beginning to affect consumer spending.
“The lack of follow-through into November suggests consumers are being much more cautious with their money amid recession fears and the draining effect of overall high inflation and sharply rising borrowing costs,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.
Retail sales fell 0.6 percent last month, the biggest drop since December 2021, after an unrevised 1.3 percent jump in October. Economists polled by Reuters had forecast sales dipping 0.1 percent.
Retail sales, which are mostly goods and are not adjusted for inflation, increased 6.5 percent year-on-year in November. Consumers have been drawing down savings to fund purchases. The savings rate was at 2.3 percent in October, the lowest since July 2005.
Sales at auto dealers fell 2.3 percent last month as motor vehicles remain in short supply. Receipts at service stations dipped 0.1 percent, reflecting lower prices for petrol or gasoline.
The boost from one-time tax refunds in California, which saw some households receiving as much as $1,050 in stimulus cheques in October, and Amazon’s second Prime Day faded last month.
Other factors that hurt sales included the rotation in spending back to services and discounting by retailers eager to lure cash-strapped consumers to clear unwanted inventory.
Online retail sales decreased 0.9 percent. Furniture-store sales dropped 2.6 percent. Sales at food services and drinking places, the only services category in the retail sales report, increased 0.9 percent. Electronics and appliance store sales fell 1.5 percent.
There were also decreases in receipts at general merchandise stores as well as sporting goods, hobby, musical instrument and bookstores. Clothing stores sales fell 0.2 percent.
The US Federal Reserve on Wednesday raised its policy rate by half a percentage point and projected at least an additional 75 basis points of increases in borrowing costs by the end of 2023. This rate has been hiked by 425 basis points this year from near zero to a 4.25 percent 4.5 percent range, the highest since late 2007.
Excluding automobiles, petrol, building materials and food services, retail sales slipped 0.2 percent last month. Data for October was revised lower to show these so-called core retail sales increasing 0.5 percent instead of 0.7 percent, as previously reported.
US stocks opened lower. The dollar rose against a basket of currencies. US Treasury yields fell.
Core retail sales correspond most closely with the consumer spending component of gross domestic product.
The weakness in core retail sales is likely to be offset by gains in services outlays, keeping consumer spending and the overall economy on a moderate growth path this quarter. The economy grew at a 2.9 percent annualized rate in the third quarter after contracting in the first half of the year.
Consumer spending continues to be underpinned by labour market tightness, which is keeping wages elevated.
A separate report from the US Department of Labor on Thursday showed initial claims for state unemployment benefits declined 20,000 to a seasonally adjusted 211,000 during the week ended December 10. Last week’s decrease in claims was the largest since July and pushed them to a three-month low.
Economists had forecast 230,000 claims for the latest week.
Claims have stayed below the 270,000 threshold, which economists said would raise a red flag for the labour market, despite a wave of layoffs in the technology sector.
Having had trouble finding labor in the wake of the COVID-19 outbreak, businesses are typically reluctant to fire employees, as Fed Chair Jerome Powell admitted on Wednesday.
The labor market, according to Powell, is “very tight,” and “there seems to be a fundamental labor shortage out there.” In October, there were 1.7 vacant positions for every unemployed person.
The claims data also revealed that in the week ending December 3, the number of people getting benefits following a first week of aid—a proxy for hiring rose by 1,000 to 1.671 million. Even while it was the highest reading since February, the rate of growth in the so-called continuing claims has moderated compared to previous weeks.