Santa Is Feeling Inflation Too: US Retail Sales Fell Sharply In November

The SPDR S&P 500 SPY is sliding Thursday morning after retail sales in the United States saw their steepest drop in close to a year last month, suggesting consumers are reining in spending around the holidays.

What Happened: The Commerce Department said U.S. retail and food services sales were down 0.6% in November versus estimates for a 0.1% decline. For comparison, retail sales in October were up 1.3%. 

Core retail sales, which excludes gasoline and autos, were down 0.2% versus estimates for a 0.2% increase. 

Total sales from September through November were up 7.7% from the same period a year ago.

Retail trade sales were down 0.8% from October, but up 5.4% on a year-over-year basis. Gasoline stations were up 16.2% year-over-year while food services and drinking places were up 14.1%.

Why It Matters: The report suggests that consumer demand is waning as inflation continues to eat into savings. The Federal Reserve will be paying close attention as it looks for a slowdown in consumer spending in response to rising rates.

Weaker spending trends should lead to a slowdown in economic growth, which should help tackle historically high inflation.

The report comes just a day after the Fed pulled back on its pace of rate increases, opting for a less aggressive 0.5% increase following a series of four consecutive 0.75% rate hikes.

In a press conference following the decision on rates, Fed Chair Jerome Powell reaffirmed the central bank's commitment to bringing inflation back down to its 2% goal. Although he acknowledged that recent data is encouraging, he indicated that it's not enough. 

See Also: Fed Still Needs 'Substantially More Evidence' Following 0.5% Rate Hike — Experts React With 'Famous Last Words'

"The inflation data received so far from October and November show a welcome reduction in the monthly pace of price increases, but it will take substantially more evidence to get confidence that inflation is on a sustained downward path," Powell said. 

Thursday's retail sales data suggests consumers are tightening budgets for the 2022 holiday shopping season. 

SPY Price Action: The SPY was down 1.11% at $394.90 Thursday morning, according to Benzinga Pro.

Photo via Shutterstock.