Retail consumers waiting in line

U.S. consumers spent 0.2 percent less in December than in November, even as the holidays were under way, the commerce department reported. Adjusted for inflation, the drop was 0.3 percent.

It was the second consecutive monthly reduction and the most dramatic monthly slide this year.

Shoppers spent less on goods and more on services, which pushed prices up in that sector. Gasoline and energy prices fell.

Inflation measured by the Consumer Price Index slowed to a 6.5-percent annual rate in December. The core index, which ignores food and energy costs, fell from 4.7 percent in November to 4.4 last month.

However, the core measure grew to 0.3 percent in December from 0.2 in November.

Again, this is simple math, the higher interest rates rise and the more it costs to borrow, the less consumers will spend. 

And as we have long noted, and as now evidenced by the data, the Fed’s steady campaign of interest rate increases made mortgages more expensive, which has brought on a housing sale slump, the fewer homes people buy the lower the demand for appliances, furniture, and home improvement items…which shows up in the decreasing sales numbers.

Consumers spent less last month even though they earned more. Incomes rose 0.2 percent from November.

Because people are spending less, the U.S. savings rate moved up to 3.4 percent of income last month, a sizable gain from November’s 2.9 percent. 

The rate has fallen sharply from the historic 33 percent in April 2020 as shoppers were locked down to “flatten the curve” at the start of the COVID War. Now Americans have tapped their COVID-era cash reserves to keep buying even as inflation and rising interest rates drove prices up. (See “Americans Drain Their Savings to Keep Spending,” 12 Oct 2022.)

TREND FORECAST: As we had forecast in “More Lower-Income Americans Will Skip Holiday Shopping This Year” (26 Oct 2022), much of the retail industry depends on strong winter holiday sales to turn a profit. 

And instead of money in the cash register, stores have inventory on their shelves, as we report in “Economy Grew In Fourth Quarter But Weaknesses Showed Through” in this issue.

As a result, more storefronts will go dark and more retail workers will head for the unemployment line.

Because consumer spending supports over two-thirds of the U.S. economy, the loss of holiday spending pushes the country closer to recession. Also, overstocked merchants are unlikely to place new orders for goods in the coming weeks and months, weakening factory output and jeopardizing jobs in that sector as well.

For retailers who survive, as well as manufacturers, the current economic crunch will speed their adoption of automation to cut labor costs and boost efficiencies.

Human power will be reserved for interactions that require a human face.

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