- US retail sales rose 0.3% in November as holiday spending crashed into strong inflation.
- Economists expected sales to rise by 0.8%. The print shows spending easing from October's pace.
- The print signals the spending surge is slowly cooling, and that inflation might soon follow suit.
Americans' spending at stores and restaurants took a step back in November as virus case counts soared higher and inflation ate away at households' earnings.
Retail sales rose 0.3% to a record $639.8 billion last month, the Census Bureau said Wednesday. That came in well below the consensus forecast of a 0.8% jump from economists surveyed by Bloomberg. The print also marks a major deceleration from the 1.8% growth seen in October.
October's spending sum was unrevised from $638.2 billion, according to the report.
The deceleration was mostly powered by declines in spending at electronics and appliances stores and department stores. The former saw sales sink 4.6% through the month, the most of any category in the report. Gas stations saw spending climb the most, with the 1.7% jump possibly pointing to increased travel activity during the Thanksgiving holiday.
While consumer spending remains one of the bright spots of the recovery, November offered its fair share of headwinds. The supply-chain crisis continued to ensnare the economy, leaving businesses struggling to shore up inventories. That helped drive inflation to a year-over-year rate of 6.8% last month, its fastest pace since 1982.
Rebounding virus cases also challenged economic activity. Daily case counts swung higher through November and have moved higher since as the Omicron variant spreads across the country.
The Wednesday report suggests inflation and virus fears are weighing on Americans' spending sprees. The November gain is the smallest seen since spending dropped in July. Sales may still sit at record highs, but the slower increase suggests rapid growth peaked in the fall.
It also echoes indicators hinting the gap between supply and demand started to close last month. Various surveys of US manufacturers showed orders for goods declining in November while inventories strengthened. Bottlenecks at ports are also improving, which could further shore up supply. And a recent note from Jefferies found that companies' third-quarter earnings calls suggested the worst of the supply-chain mess is over.
It's possible today's shortages turn into surpluses in a matter of months, Susan Sterne, president and chief economist at Economic Analysis Associates, told Insider on Friday. Thanksgiving and Black Friday shopping "was weaker than expected," and consumer sentiment data points to demand cooling further into 2022. With inventories on the rise, "you'll start to see some aggressive discounting" as companies shift from hiking prices to trying to offload goods, Sterne said.
The first signs of inflation pulling back
The latest sales data also provides new signals of price growth fading into the new year. The Federal Reserve and Biden administration have both said that, while inflation has exceeded expectations, it's still set to cool by the middle of 2022. Solving supply logjams would certainly help rein in inflation, but weaker spending activity could also slow this year's rapid price growth.
Last week's Consumer Price Index report also hinted inflation already reached its peak. The measure rose 0.8% month-over-month in November, surpassing the 0.7% forecast but slowing from the 0.9% pace seen in October. The bleak year-over-year growth is somewhat skewed, as the same time last year featured the start of the coronavirus's winter resurgence. Vaccines were not rolled out until early 2021, leading the winter wave to have a much stronger effect on the economy.
The month-over-month print, however, signals inflation is falling back to earth, albeit at a slower pace than experts predicted. Economists largely expect price growth to crest in the fourth quarter before trending sharply lower throughout 2022. The Fed is also set to reveal its latest economic projections Wednesday afternoon, giving new insights into how officials plan to fight price growth with higher interest rates next year.