Consumer Spending Slows, Retail Sales Fall 0.4%
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WASHINGTON — American retail sales weren’t jolly in December, taking a holiday season tumble that will restrain the economy.
Retail sales fell by 0.4%, the Commerce Department said yesterday. Wall Street expected a 0.1% dip as energy prices and falling home values evidently catch up with consumers.
Sales in the prior two months were revised lower, with demand rising 1.0% in November and flattening in October. Previously, the government estimated sales rose 1.2% in November and 0.2% in October.
“It looks like the consumer is slowing down,” an economist at Raymond James Financial Inc., Scott Brown, said.
A separate report yesterday showed producer prices dipped 0.1% during December, a welcome sign amid concerns about inflation.
“Taken together, the two reports give the Fed a lot of leeway to cut rates further,” Mr. Brown said.
The Federal Reserve has reduced the federal funds rate target by 100 basis points to 4.25% since August, with the discount rate lowered 150 points to 4.75%. Its policy-making Federal Open Market Committee has to balance concerns about inflation with those of the economy. Analysts expect a cut in the federal funds rate of another 50 basis points when the FOMC meets January 29–30.
“The risks to the economy are to the downside and the Fed will likely assume that stronger action has to be taken,” the head of an economic consulting firm, Joel Naroff, said. “My guess right now is that we get a 50 basis point cut on January 30 and additional cuts at the subsequent meetings that takes us down to 3.25%.”
The retail sales report is a pivotal economic report because it illustrates where Americans are spending their money. The 0.4% drop in December signaled the holidays weren’t so merry for merchants and indicated consumers might be losing their resilience and starting to buckle under the pressure of higher energy prices, falling home values, and an iffy job market. The Labor Department reported two weeks ago American nonfarm payrolls climbed by a mere 18,000 jobs in December. These factors aren’t good for consumer spending or the economy; consumer spending makes up about 70% of economic activity in America.
