Retail sales in November fell more than economists expected as the economy begins to show signs of slowing.
Retail sales plunged by a seasonally adjusted 0.6% in November from the previous month, double the 0.3% drop that economists were predicting. The news is sure to ring alarm bells about a recession and indicates that the Federal Reserve’s aggressive interest rate hikes may be beginning to filter through the economy.
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FED SLOWS RATE-HIKING CAMPAIGN IN SIGN OF CONFIDENCE IN BATTLE AGAINST INFLATION
This is the third negative retail sales report in just the past five months. The year-over-year gain of 6.5% falls below the U.S. rate of inflation and is the slowest year-over-year retail sales growth in more than two years.
“This is perhaps the strongest evidence yet that consumers are pulling back, and it comes at a critical time of year for retailers,” said Ted Rossman, senior industry analyst at Bankrate.
The news sent jitters through the market. The Dow Jones Industrial Average shed more than 600 points on Thursday morning, or about 2%. The tech-heavy Nasdaq plunged by 2.5%, and the S&P 500 had more than 2% of its value erased in the hours after the retail sales report dropped.
The Fed has been on a historic mission to tame inflation, which is the worst it has been in decades. The central bank raised rates by half a percentage point this week, adding to the whopping total of 4.25 percentage points that rates have been hiked since the beginning of the year.
By raising rates, the Fed curbs consumer demand for goods and causes prices to fall alongside demand. But if rates are raised too much it can overcorrect and cause the economy to spiral into a recession.
Still, the labor market has proven remarkably resilient in the face of the Fed’s tightening.
The economy gained 263,000 jobs in November, while the unemployment rate remained at 3.7%, a low figure by historical standards. The unemployment rate has flirted with 3.5% throughout the year, matching the ultra-low level it was at right before the pandemic took hold in 2020.
Also on Thursday, the Labor Department reported that the number of new applications for unemployment benefits dropped by 20,000 to 211,000 last week, another sign that the employment picture is not deteriorating as fast as many may have thought.
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Still, even despite inflation falling, the Fed isn’t ready to end its campaign to tighten money. Fed Chairman Jerome Powell made it abundantly clear during a press conference this week that the central bank will continue with its tightening until it sees sufficient proof that prices are falling back in line with its preferred rate.
“Inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases, but it will take substantially more evidence to give confidence that inflation is on a sustained downward path,” Powell said.
