WASHINGTON- US retail sales fell by the most in a year in December, pulled down by declines in purchases of motor vehicles and a range of other goods, putting consumer spending and the overall economy on a weaker growth path heading into 2023.
The second straight monthly decrease in retail sales, which are mostly goods, is undercutting production at factories. Manufacturing output recorded its biggest drop in nearly two years in December, while monthly producer prices also tumbled, other data showed on Wednesday.
The widespread signs of weakening demand and subsiding inflation are likely to encourage the Federal Reserve to further scale back the pace of its rate increases next month, but not pause its monetary policy tightening anytime soon as the labor market remains tight. The US central bank is engaged in its fastest rate hiking cycle since the 1980s.
“Consumers are likely retrenching during a time of economic uncertainty,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “The trajectory for the economy is weakening and recession risks are rising for 2023.”
Retail sales plummeted 1.1 percent last month, the biggest drop since December 2021. Data for November was revised to show sales decreasing 1.0 percent instead of 0.6 percent as previously reported. Economists polled by Reuters had forecast sales decreasing 0.8 percent. Retail sales rose 6.0 percent year-on-year in December.
Retail sales are not adjusted for inflation. December’s decline in sales was likely in part the result of goods prices falling during the month. Holiday shopping was also pulled forward into October as inflation-weary consumers took advantage of discounts offered by retailers.
A cold snap in December likely chilled sales at restaurants and bars. Lower gasoline prices, which impacted on receipts at service stations, also helped to knock down sales. In addition, spending is shifting back to services.
