U.S. Retail Sales Fell More Than Expected in November

Retail sales fell 0.6% in November, the largest decline this year and double what economists expected, as a slowing economy and rising borrowing costs continue to weigh on consumers.

The S&P 500 fell more than 2% after the news, extending Wednesday’s declines which started after the Federal Reserve hiked interest rates. Treasury yields fell, with the yield on the 10-year note stabilizing at 3.45%. Markets were also weighed down by weaker-than-expected industrial production data, as well as interest rate hikes from the European Central Bank (ECB) and Bank of England (BoE).

Sales fell in nine out of 13 categories of retailers tracked by the U.S. Census Bureau. The largest declines included a 2.6% drop in sales at furniture and home goods stores and a 2.5% fall in building material and garden center sales. Ecommerce also slumped, with purchases sinking 0.9% despite record-setting Black Friday sales last month.

Bars and restaurants recorded a 0.9% increase in sales, the largest gain of any category. Purchases from food and beverage stores also rose by 0.8%. The shift in consumer spending away from durables and toward consumer staples highlights growing pressure on consumers’ purchasing power.

Unlike most other economic indicators, retail sales are not adjusted for inflation, which means that November’s numbers reflect slowing inflation as well as changes in consumer purchases. Inflation, as tracked by the Consumer Price Index (CPI), slowed to a 7.1% annual rate in November, down from 7.7% in October and a recent peak of 9.1% in June.

Retail sales were still up 6.5% since November 2021, partly as a result of strong gains during the first half of 2022, though less than the 8.3% year-over-year rise in October. Until recently, consumer spending had remained robust, driven higher by pandemic-era stimulus checks and transfer payments that had cushioned households’ finances during the COVID-19 pandemic. However, as the Fed has raised interest rates, the slowing economy and increased cost of borrowing money has put a damper on purchases.