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Business

U.S. Retail Sales Fell 1.1% in December

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Purchases at stores, restaurants and online, declined a seasonally adjusted 1.1% in December from the prior month, the Commerce Department said Wednesday. Sales were also revised lower in November and have fallen three of the past four months. The department seasonally adjusts monthly data to make it comparable over time. On an unadjusted basis, December is typically the peak sales month for the year.

A Federal Reserve report Wednesday found economic activity was relatively flat at the start of the year and businesses are pessimistic about growth in the months ahead. A separate Fed report showed U.S. industrial production slumped in December, led by weakness in manufacturing. A Labor Department report showed inflation was cooling.

Stocks fell Wednesday after the data releases. The S&P 500 shed 1.6%. The Dow Jones Industrial Average was down 1.8%, while the Nasdaq Composite Index lost 1.2%. The yield on the benchmark 10-year Treasury note declined 0.16 percentage point to 3.374%.

The latest data add to signs that the U.S. economy is slowing as the Fed pushes up interest rates to combat inflation. Hiring and wage growth eased in December, U.S. commerce with the rest of the world declined significantly in November, and existing-home sales have fallen for 10 straight months.

S&P Global downgraded its estimate for fourth-quarter economic growth Wednesday by a half percentage point to a 2.3% annual rate. Economists surveyed by The Wall Street Journal this month expect higher interest rates to tip the U.S. economy into a recession in the coming year.

“The lag impact of elevated inflation weighs heavily on U.S. households, it’s very clear that the median American consumer is still reeling from the loss of wages in inflation-adjusted terms,” said

Joseph Brusuelas,

chief economist at RSM US LLP. “We’re moving towards what I would expect to be a mild recession in 2023,” he added.

Federal Reserve Bank of St. Louis President

James Bullard

said Wednesday the central bank should keep on rapidly raising interest rates and supported a half-percentage-point increase at the Jan. 31-Feb. 1 meeting. 

“We want to err on the tighter side to make sure we get the disinflationary process to take hold in the economy,” he said at a Wall Street Journal Live event.

Mr. Bullard’s position is at odds with several of his colleagues, who have suggested that a slower pace of rate increases would be appropriate to allow Fed officials to gauge how their aggressive pace of policy tightening has affected the economy.

Inflation, while still historically high, is showing signs of cooling as demand eases. Unlike many government reports, retail sales aren’t adjusted for inflation. 

Consumer prices advanced 6.5% from a year earlier in December, the sixth straight month of deceleration. The producer-price index, which generally reflects supply conditions in the economy, fell in December from the prior month, and increased at the slowest annual pace since March 2021, the Labor Department said Wednesday.

The National Retail Federation said Wednesday holiday sales were disappointing. The trade group said November and December sales rose 5.3% compared with the same period last year to $936.3 billion. In November, the NRF said it expected holiday sales to rise between 6% and 8%. The NRF figures aren’t adjusted for inflation and exclude fuel, auto and restaurant spending.

Somewhat slower inflation at the end of the year didn’t offset weaker demand, said NRF Chief economist

Jack Kleinhenz.

 Consumers are “hit with higher food prices, they are getting hit with higher service prices and they are having to make choices,” he said. Some spending was likely pulled into October as retailers kicked off deals early this year, he added. Retailers discounted heavily and early to clear excess stock from their shelves and warehouses.

Zach Carney, of Boston, said he has been cutting back on eggs and red meat because the prices are so high. “The price of eggs really jumps out at you,” the 28-year-old publicist said. Instead, he has been stocking up on value packs of chicken and buying more store-brand cereal and olive oil, which cost less than national brands.

In 2021, officials thought high inflation would be temporary. But a year later, it was still near a four-decade high. WSJ’s Jon Hilsenrath explains factors that have kept inflation up longer than expected. Illustration: Jacob Reynolds

The retail sales report showed spending declined in a number of gift-giving categories in December, including at electronics, clothing and department stores, and with online retailers, a category which includes companies such as Amazon.com Inc.

Dining out at bars and restaurants dropped 0.9% in December. Sales of furniture and vehicles, which are sensitive to higher borrowing costs, both fell sharply. The only categories to post slight growth in December were grocery, sporting goods and home improvement stores, as winter storms battered many parts of the U.S.

Some retailers have said the recently completed holiday shopping season turned out to be weaker than expected. Macy’s Inc. warned of softer sales, and Lululemon Athletica Inc. said its profit margins were squeezed as shoppers bought more items on sale.

Many retailers had benefited from surging sales earlier in the pandemic as shoppers stocked up on everything from toilet paper to home electronics and furniture, supported by government stimulus dollars. Those tailwinds have cooled, leaving retailers and product manufactures to confront slower spending in some categories and the longer term dynamics of the industry, such as a gradual shift to online spending.

Apparel retailers are especially exposed to the current pullback in discretionary spending, said Kelly Pedersen, the U.S. retail leader at PwC, a consulting firm. “Buying fashion items at department stores is discretionary,” said Mr. Pedersen. Many apparel retailers are still working to sell through excess inventory and offering deep discounts amid weak demand, he said. 

Department stores, which saw a 6.6% sales drop in December, struggled to boost sales before the pandemic quickly shifted buying habits. In 2020, a string of department stores filed for bankruptcy, including Lord & Taylor, J.C. Penney Co., Neiman Marcus Group Ltd. and Stage Stores Inc. 

Party City Holdco Inc. filed for chapter 11 bankruptcy this week while noting inflationary pressures have hampered customers’ willingness to spend. Bed Bath & Beyond Inc. said this month it plans more layoffs and cost cuts amid falling sales.

The retail sales report offers a partial picture of consumer demand because it doesn’t include spending on many services such as travel, housing and utilities. The Commerce Department will release December household spending figures covering goods and services later this month.

Corporate reports out in February will add to that picture. Walmart Inc., Target Corp. and other large retailers—which sell a variety of goods such as food, clothes and décor—report quarterly earnings next month, which will include December sales.

—Suzanne Kapner and David Harrison contributed to this article.

Write to Harriet Torry at harriet.torry@wsj.com and Sarah Nassauer at Sarah.Nassauer@wsj.com

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Business

China Growth Slows Across All Fronts in July, Prompting Unexpected Rate Cut

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SINGAPORE—China’s economy stumbled in July as a two-month boost from easing lockdowns faded, prompting the country’s central bank to unexpectedly cut two key interest rates in an effort to shore up faltering growth.

A raft of data released Monday showed economic activity slowed across the board in July, including factory output, investment, consumer spending, youth hiring and real estate, highlighting the breadth of the economic challenge facing policy makers in a politically sensitive year for leader

Xi Jinping,

who is expected to break with recent precedent and seek a third term in power this fall.

The fresh evidence of China’s slowdown adds to the headwinds facing the global economy this year, which is already reeling from the fallout from Russia’s invasion of Ukraine and efforts by central banks in the U.S., Europe and beyond to tame rocketing inflation by jacking up borrowing costs.

The world’s second-largest economy is straining under the effects of Beijing’s zero-tolerance approach to Covid-19 and a deflating property bubble, which have triggered protests and mortgage-payment strikes in several provinces and cities. Consumers are reluctant to spend and businesses are wary of investing, a consequence of the “humongous uncertainty about the future,” said

Alicia García-Herrero,

Asia-Pacific chief economist at investment bank Natixis in Hong Kong.

One stark sign of China’s economic malaise: One in five Chinese youth, or 19.9%, was unemployed in July, Wednesday’s figures showed, the highest level since China started publishing such data in 2018.

On Monday, the People’s Bank of China cut by 0.1 percentage point two key interest rates and pumped the equivalent of $59.3 billion into the financial system to rev up lending and wider economic growth. The unexpected move marked a small step toward more support for China’s economy, and may foreshadow further cuts to borrowing costs in the months ahead, some economists said.

Job seekers lining up in Shanghai.



Photo:

Cfoto/Zuma Press

But overall, officials have signaled they are unpersuaded by the need for more forceful policy action, mindful of risks such as rising inflation and ballooning debt. Senior Chinese leaders have effectively dropped a growth target of around 5.5% for the year, and the question now for many economists is just how feeble growth is likely to get.

Data released by China’s National Bureau of Statistics Monday showed industrial production rose 3.8% from a year earlier in July, easing from a 3.9% year-over-year increase in June and well short of the 4.5% growth expected by economists polled by The Wall Street Journal.

Factory output and exports have been a bright spot for Chinese growth for the past two years, especially after production resumed and supply-chain kinks were worked out following the lifting of lockdowns imposed in the spring to contain Covid-19. But economists have long expected demand for Chinese goods to begin to fade as consumers in the West feel the pinch from rising prices and interest rates.

Retail sales, a key gauge of consumer spending, grew 2.7% from a year earlier in July, a weaker reading than the 3.1% recorded in June and the 5.0% increase expected by surveyed economists.

Growth in retail sales in July was little more than half what economists expected.



Photo:

Qilai Shen/Bloomberg News

Consumer confidence has been rocked by the threat of repeated lockdowns and China’s property bust. Separate data released Monday showed new home prices posted their steepest year-over-year decline in more than six years in July, highlighting the strain in the real-estate market after a yearlong regulatory squeeze that has hit sales and led to stalled projects and developer defaults.

Average new-home prices in 70 major cities fell 1.67% in July from a year earlier, compared with June’s 1.29% decrease, according to Wall Street Journal calculations based on data released Monday by China’s statistics bureau.

On a month-on-month basis, average new-home prices fell for an 11th consecutive month. Prices dropped 0.11% in July from June, widening from the previous month’s 0.10% decline, the statistics bureau said. Only 30 of the 70 cities recorded a month-over-month increase in home prices in July, down from 31 cities in June.

Officials have pinned their hopes for an economic revival this year on lavish government spending on infrastructure, but data so far suggest the benefits of that push have been limited, likely reflecting financing strains on the provincial governments tasked with implementing the policy, economists say. Fixed-asset investment slowed in July, rising 5.7% on year in the January-July period, compared with the 6.1% pace recorded in the first half of the year. Economists had expected growth of 6.2%.

The unemployment rate for those age 16 to 24 rose to 19.9% in July, from 19.3% in June, setting a record. The overall jobless rate edged down, however, to 5.4% from 5.5%.

Senior Chinese Communist Party officials announced no new fiscal stimulus measures at a meeting late last month and pledged to stick with their zero-tolerance approach to managing Covid outbreaks, while appearing to drop their official goal of increasing gross domestic product by around 5.5% this year. Many economists expect China to record growth of around 3% to 4% in 2022.

—Grace Zhu and Bingyan Wang in Beijing contributed to this article.

Write to Jason Douglas at jason.douglas@wsj.com

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Business

U.S. Retail Sales Declined 0.3% in May

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Americans’ retail spending declined in May, as consumers felt the pinch from inflation, higher gasoline prices and rising interest rates that make car purchases more expensive.

Retail sales—a measure of spending at stores, online and in restaurants—fell a seasonally adjusted 0.3% in May from the previous month, dropping from April’s revised 0.7% increase, the Commerce Department said Wednesday.

A sharp drop in vehicle sales—due to high prices, low inventory and rising interest on car loans—played an outsize role in the decline in month-over-month retail spending. Excluding autos, retail sales rose 0.5% last month.

Excluding gasoline station sales, retail spending fell 0.7% in May from April—a sign that high gas prices are taking up a greater share of consumers’ spending. Receipts at gas stations jumped 4% in May from the prior month.

Interest rates look set to rise further, a potential damper on consumer spending in the months ahead as car loans and credit-card debt get more expensive. Later Wednesday, the Federal Reserve is set to wrap up a two-day policy meeting. A string of troubling inflation reports in recent days is likely to lead Fed officials to consider surprising markets with a larger-than-expected 0.75-percentage-point interest-rate increase.

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Craig Johnson,

president of Customer Growth Partners, a research and consulting firm, said he anticipates a slowdown in retail spending.

“We’re in a little bit of a watershed in terms of what’s going to happen to the economy,” Mr. Johnson said. “The American consumer—she’s very resilient, but she’s not infinitely resilient.”

So far this year, consumer spending has broadly held up, according to government data through April. Consumer spending accounts for about 70% of U.S. economic output. A strong labor market and rising wages are helping to support spending on services, for which there is pent-up demand from the pandemic.

A number of factors are contributing to the expected moderation in retail spending. Consumers are continuing to shift spending to services from goods as many Americans resume more in-person activities such as travel and dining out.

Where in Americans’ household budgets is inflation hitting the hardest? WSJ’s Jon Hilsenrath traces the roots of the rising prices to learn why some sectors have risen so much more than others. Photo Illustration: Laura Kammermann/WSJ

Higher prices are also giving consumers pause, analysts say. Retail sales aren’t adjusted for inflation. While consumers have continued to spend, they are getting less for their money due to rapidly rising prices. The dynamic is also driving an expected shift from discretionary purchases such as furniture and electronics to essentials like food and gasoline. Record prices for a tank of fuel mean spending at gas stations likely increased last month.

The average cost of a gallon of regular gasoline exceeded $4.60 a gallon in late May, up from about $3 a gallon a year earlier, according to the U.S. Energy Information Administration. Prices in June have risen above $5 a gallon.

Logan CoBell, 33 years old, who works in Chicago as a bartender and substitute teacher, said he is driving only for essential reasons, such as commuting to work, to save money on gasoline. He is watching his spending at the grocery store by cutting down on purchases of red meat and opting for cheaper alternatives such as pork and nonorganic chicken.

Mr. CoBell said he was holding off on upgrading to a new computer “so I have cash in hand just in case something weird happens, like another shutdown.”

U.S. consumer inflation reached its highest level in more than four decades in May, according to the Labor Department’s consumer-price index, as surging energy and food costs pushed prices higher.

Logan CoBell of Chicago says rising prices means he drives only when he needs to and has cut back on pricier groceries, including red meat.



Photo:

Alicia Castaneda

Companies are struggling with higher inflation, which they say is increasingly hard to pass on to consumers. Some large retailers such as

Walmart Inc.

and

Target Corp.

in recent weeks reported steep profit declines as rising supply-chain, wage and inflation-related costs ate into earnings.

Inflation and high fuel prices are also taking a toll on consumer confidence. Last week the University of Michigan reported that an index of consumer sentiment dropped in June to its lowest point since the inception of the survey in the late 1940s.

Bill Stoops, a 72-year old retiree living in San Diego, said the hit to asset values from financial-market turmoil in recent months means he is pulling in some spending.

“We thought about planning a trip to France and Germany, maybe Italy—we still want to do that but we don’t see it for this year at all,” he said, adding “I’m no longer talking about replacing my current fun car with another fun car.”

Write to Harriet Torry at harriet.torry@wsj.com and Rina Torchinsky at rina.torchinsky@wsj.com

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Business

U.S. Retail Sales Grew 0.9% in April

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U.S. shoppers increased retail spending in April for the fourth straight month, taking on higher prices with inflation close to its highest level in four decades.

Retail sales—a measure of spending at stores, online and in restaurants—rose a seasonally adjusted 0.9% in April from the prior month, the Commerce Department said Tuesday.

Retail sales aren’t adjusted for inflation. That means that while consumers have continued to spend more, they are likely getting less due to rapidly rising prices.

In April, consumers spent more at bars and restaurants, on vehicles, furniture, clothing and electronics. However they pulled back on spending at grocery stores, on home improvement and sporting goods.

Receipts at gas stations also dropped as pump prices pulled back briefly from a sharp run-up related to the war in Ukraine. Gasoline prices have since risen again, hitting a record high this month.

Consumers are continuing to feel the pinch from high inflation, which rose 8.3% in April from a year earlier, according to the Labor Department’s consumer-price index.

Consumer spending, adjusted for inflation and seasonality, accelerated in the first quarter compared with the end of last year, according to the Commerce Department. Consumer spending is a driving force for the U.S. economy.

Still, there are signs that inflation is having an impact on retail businesses.

Walmart Inc.

said Tuesday that sales grew during the most recent quarter, while higher product, supply-chain and employee costs ate into profits. Inflation created more pressure than the company expected on margins, particularly in food and fuel, Walmart Chief Executive

Doug McMillon

said in a release.

Airlines, gas stations and retailers use complex algorithms to adjust their prices in response to cost, demand and competition. WSJ’s Charity Scott explains what dynamic pricing is and why companies are using it more often. Illustration: Adele Morgan

Consumers have also shifted some spending to services from goods as a winter surge of Covid-19 from the Omicron variant faded and many people resumed more in-person activities.

JPMorgan Chase

& Co.’s tracker of credit- and debit-card transactions last week showed that consumer spending at restaurants and on entertainment picked up in early May.

Stephen Purtell,

interim chief financial officer at

Six Flags Entertainment Corp.

, said on an earnings call last week that despite recently rising Covid-19 cases, “people are just learning how to live within that environment, and they’re still going out.”

After many people earlier in the pandemic focused more of their spending at home, Mr. Purtell said, “now you see kind of a reversal of that and people wanted to get back out and enjoy experiences, and we don’t think that will change.”

California resident Larry Isacson said he paid more for a hotel stay than he would have expected a few years ago.



Photo:

Isacson family

Larry Isacson,

a retired information-technology executive in the pharmaceutical industry, took a trip to Las Vegas and Utah in April and paid $400 a night for a hotel in St. George, Utah.

“That would have seemed exorbitant a few years ago, for a room with not that many amenities,” he said. “I just basically had to swallow it and accept that that’s what the rate is, and I want to be there so I have to pay the rate.”

Mr. Isacson said that the hotels around where he lives in Laguna Niguel, Calif., appear to be doing well. He added, “Clearly people are in the mood to spend.”

Write to Harriet Torry at harriet.torry@wsj.com

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Business

U.S. Retail Sales Rose in June

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U.S. shoppers boosted retail spending in June as the economy more broadly reopened and auto dealers navigated supply disruptions.

Retail sales—a measure of purchases at stores, at restaurants and online—rose 0.6% last month compared with May, the Commerce Department reported Friday.

Auto sales, which have shown signs of slowing amid supply-chain disruptions that have limited the number of vehicles for sale, weighed on overall retail sales in June. Excluding autos—a sometimes volatile category of products—sales rose 1.3% in the same period. Auto sales, meanwhile, fell by 2%.

Retail spending had slowed in late spring after surging earlier in the year from the impact of federal coronavirus aid to households. June’s increase marks a pickup in consumer spending.

Consumers in June spent more on products and services associated with the resumption of outside activities as governments ended many remaining Covid-19 restrictions. Sales rose strongly at restaurants and bars and clothing and accessories stores. Meanwhile, sales fell in categories that benefited from strong demand earlier in the pandemic as Americans stayed at home. Sales at furniture, sporting goods and building materials stores fell.

Supply-chain disruptions have limited the number of vehicles for sale.



Photo:

David Paul Morris/Bloomberg News

“Fast forward to June, it’s almost a perfect flip-flop,” said

Tim Quinlan,

senior economist at Wells Fargo. Consumers are now thinking “anywhere but home,” which should benefit retailers in industries that were hard-hit earlier on, he said.

Ann Leadbetter, co-owner of Meriwether Cider in the Boise, Idaho, area, said business has picked up at the cidery’s two locations since mask mandates were lifted earlier this spring. Once that restriction was eased, Ms. Leadbetter said she felt comfortable returning seating to the inside bar areas. She also has noticed a pickup in tourists and events, which she said is particularly helping the business’s location in downtown Boise.

“We anticipate an uptick when the weather warms up anyway, but this has been even better than the usual seasonal uptick that we’ve had in past springs and summers,” Ms. Leadbetter said. “Even if it levels out, it’ll be better than 2020, and it’s already a lot better even than 2019.”

Many economists have said they expect consumers to shift spending away from purchases of goods, particularly big-ticket items, to the services sector as the end of pandemic-related restrictions allows the economy to open more fully and Americans to resume outside activities.

A Bank of America tracker of credit- and debit-card spending showed consumers in June boosted expenditures at restaurants by 2.7% and on lodging by 7.8% compared with May, on a seasonally adjusted basis. Spending for clothing, general merchandise and at department stores also rose strongly, while spending on furniture fell.

“Sectors that were buoyed by the pandemic are slowing down a little bit, but not to a degree that I’d be concerned about,” said Felipe Chacon, an economist at payments company Square. “Household finances have been bolstered by a few rounds of stimulus spending, so it bodes pretty well,” for retail sales broadly, he said.

The National Retail Federation, a trade association, in June lifted its forecast for annual retail sales this year to between $4.44 trillion and $4.56 trillion, from $4.33 trillion to $4.44 trillion previously.

Katherine Cullen,

senior director of industry and consumer insights at the trade group, said the upwardly revised forecast reflected a strong pickup in the overall economy and better-than-expected retail sales growth.

She expects goods retailers that offer products related to activities in the services sector, such as traveling, to see further strength in the coming months. She also forecasts brisk back-to-school sales as families stock up on products they didn’t need last year because many students were learning remotely.

Economists have said they expected consumers to shift spending from goods to services like dining out as pandemic restrictions are lifted.



Photo:

Stephen Zenner/Zuma Press

Still, some retailers have said that challenges attracting workers for open positions and supply-chain disruptions are placing constraints on business.

A semiconductor shortage helped drive up prices for autos in June. The Federal Reserve on Thursday reported that U.S. manufacturing output fell slightly last month, as motor vehicle and parts production dropped sharply.

Alan Guyes, co-owner of electronics retailer Audiotronics in Roanoke, Va., said demand has been robust since last summer for items such as televisions, smart speakers and sound bars, with in-store traffic picking up in recent months as the pandemic has eased. But he said he often encounters customers looking for products that are either unavailable or on several-months’ backlog because of supply-chain issues ranging from input shortages to long shipping times.

“It’s frustrating, obviously. Some days, it’s a lost sale. Customers are frustrated. We’re all used to being able to ‘just in time’ anything,” he said, referring to the ability to obtain products at or close to the time they are needed.

Federal Reserve Chairman

Jerome Powell

has said he expects upward price pressures to ease as supply-chain issues and friction associated with the economy ramping up are resolved.

Mr. Quinlan of Wells Fargo said he doesn’t expect price increases to deter Americans from spending for now.

“Right now, consumers are price takers,” Mr. Quinlan said, noting many households have cash on hand from savings during the pandemic and the start of monthly payments of the expanded child tax credit.

“The pent-up demand is so great,” for spending on items like vacations, rental cars and flights, he said. “Once that sugar high has worn off, then you’ll start to see ordinary price sensitivity come back into consumer behavior.”

Write to Amara Omeokwe at amara.omeokwe@wsj.com

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