Daily Brief: US Shoppers Are Spending Less This Christmas, Which Might Be Why The Fed's Finally Changed Course

Daily Brief: US Shoppers Are Spending Less This Christmas, Which Might Be Why The Fed's Finally Changed Course

about 2 years ago3 mins

Data out on Wednesday showed US retail sales rose at their slowest in four months in November, as the country’s shoppers realize there’s only so generous they can be this Christmas…

What does this mean?

US retail sales were just 0.3% higher in November than they were the month before, falling short of the 0.8% economists were expecting. And while electronics and appliances sales dropped 4.6%, this wasn’t just a matter of one player letting the side down: five of the 13 of retail categories sold less in November than October. Sure, that might be because Americans did their holiday shopping ahead of time in a bid to outmaneuver supply chain shortages. But a grimmer theory is that shoppers are being put off by soaring consumer prices, which might become even more pronounced early next year when more government support programs – including the freeze on student loan payments – grind to halt.

Retail sales and inflation
Source: The Wall Street Journal

Why should I care?

The bigger picture: The Fed’s stepping up.

Consumer spending accounts for more than two-thirds of the US economy, which means this drop-off could have a big impact on the country’s economic growth. That might be why the Federal Reserve (the Fed) is finally calling time on inflation: the central bank announced on Wednesday that it’ll be winding down its bond-buying program twice as fast as it originally planned. That should push up the cost of borrowing, deter spending, and, ultimately, cool down rising prices.

For you personally: Time for change.

The Fed’s said it won’t hike interest rates until it’s no longer buying any bonds, so Wednesday’s announcement suggests this hike will happen sooner than expected too. And it could be the first of many: Fed officials are now hinting at as many as three rate rises next year, which could be a reason to rotate away from tech stocks – which perform worse in high-interest environments – and into those that are less affected, like consumer staples

Fed dot plot

Keep reading for our next story...

UK Inflation Rose To Its Highest Level In A Decade

UK image

Data out on Wednesday showed UK prices rose by the most in a decade last month, so this could end being Brits’ most expensive Christmas by far-la-la-la-la-la-la-la.

What does this mean?

British consumer prices rose by a higher-than-expected 5.1% last month compared to the same time last year – a hefty increase from October’s 4.2%, and well above the Bank of England’s (BoE’s) prediction of 4.5%. It’d be easy to blame fuel costs, which rose a massive 30% to hit a record high. But prices were on the up across the board: clothing by 4%, furniture by 12%, and second-hand cars by a massive 27%. Put those all together, and core inflation – a measure that removes volatile prices like food and, yep, fuel – rose 4% versus the same time a year ago. That’s its biggest jump since 1992, which makes you wonder what Jazzy Jeff makes of all this…

UK inflation

Why should I care?

The bigger picture: Don’t forget about you-know-what.

This data would normally have been enough to convince the Bank of England (BoE) to raise interest rates when it meets on Thursday – especially combined with the latest strong jobs update. But there aren’t normal, times in case you’d forgotten: Omicron has prompted the UK government to take new, potentially economy-bruising restrictions ahead of the holidays, and investors now reckon the BoE will put off raising rates till February.

UK jobs

Zooming out: China wants to get back on track.

Price rises may have been much milder in China, but the country’s economic growth is still slowing down. There’s a couple of culprits: China’s crackdown on the property market sent residential sales down by around 20% last month versus the same time last year, while Covid-shy shoppers just haven’t been buying as much. That’s got the government's attention: it’s already planning to boost economic support early next year to stabilize growth, and economists reckon even more could follow.

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