Retail sales drop at start of holiday shopping season

Americans cut back sharply on retail spending last month as the holiday shopping season began with high prices and rising interest rates forcing families, particularly lower income households, to make harder decisions about what they buy.

Retail sales fell 0.6% from October to November after a sharp 1.3% rise the previous month, the government said Thursday. Sales fell at furniture, electronics, and home and garden stores.

Americans’ spending has been resilient ever since inflation first spiked almost 18 months ago, but the capacity of Americans to continue spending in a period of high inflation may be beginning to ebb. Inflation has retreated from the fourdecade high it reached this summer but remains elevated, enough to erode the spending power of Americans. Prices rose 7.1% in November from a year ago.

“The weakness in sales ... suggests that higher borrowing costs, slower employment growth and an unusually low saving rate are now catching up with consumers,” said Andrew Hunter, senior U.S. economist at Capital Economics.

Consumer spending is still likely to grow at a solid pace in the final three months of the year, Hunter said, but he expects a sharp drop early next year.

Sales plunged 2.3% at auto dealers, and slipped 0.6% at sporting goods stores and 0.1% at general merchandise stores, a category that includes large chains such as Walmart and Target. Sales at online and catalog stores fell 0.9%.

The steep 2.5% decline in sales at home and garden stores likely reflects the sharp decline in home sales due rapid interest rate hikes in the U.S., which have put homes increasingly out of reach for more Americans.

Solid hiring, rising pay, and enhanced savings from government financial support during the pandemic have enabled most Americans to keep up with rising prices. Yet many are now digging into their savings to maintain the same level of spending. The saving rate declined to its second-lowest level on record in October.