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Retail sales are likely on a downtrend as consumers respond to a weakening economy by buying less. December sales excluding gasoline dropped 0.8%, following a similar decline in November.
Other factors were involved, as well: Holiday sales were shifted earlier in the season this year because of fears of shipping delays. Also, recent price declines in motor vehicles are making these purchases look smaller. Nevertheless, retailers are finding themselves with more inventories than they would like, which should result in fewer orders for manufacturers in the future.
Sales declines are deepest at department, electronics, appliance and furniture stores. These drops may indicate that retailers will have an incentive to offer discounts during January white sales. The drop in e-commerce sales was expected after sales jumped during the Amazon Prime Day sale in October.
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Motor vehicle sales declined in December for the second month, even after accounting for price declines. Car sales have been volatile and are affected by vehicle availability. But it may be that a peak in sales has been reached.
A possible indication that the economic slowdown is spreading beyond goods purchases: Sales at restaurants have started falling after the long uptrend when consumers became more comfortable going out again after the pandemic. This new softening in dining out should temper what have been pretty strong increases in menu prices.
Consumers are tightening their budgets amid inflation and fears of a slowing economy. Retailers such as Walmart have noticed shoppers favoring lower-priced items over higher-priced ones. Other retailers, such as Target, have lowered their earnings guidance for the season.
Going forward, some sales weakness will result from consumers switching their buying patterns to more services. Purchases of goods soared at the beginning of the pandemic in 2020. While services have picked up since then, the share of goods in household spending is still above its pre-pandemic norm. That suggests a further drop in goods buying in 2023 as the economy slows.
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