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The last two months of 2022 turned out to be a bust for spending and an alarm bell for the economy. Retail sales fell 1.1% in December, the biggest decline in a year. On top of that, November sales were revised substantially lower to -1.0% from -0.6%. Much of the holiday shopping appears to have been front-loaded in October (sales were up 1.1%), as consumers took advantage of widespread discounts. Yet, the decline in sales during the busiest shopping season of the year suggests consumers are finally pulling back from their unrestricted spending habits spurred by the pandemic and government stimulus. Rising inflation and concern about the economy are beginning to hit wallets, both physical and digital.
The spending trend in 2022 shifted from goods to services, but even that category cooled at the end of the year. Sales at restaurants and bars, the only service industry in the retail sale report, fell 0.9% in December. This was the second decline in a row and the biggest drop since January 2022. The drop in overall sales was broad-based, with “building materials and garden stores” and “sporting goods” the only two sectors posting an increase in sales. Auto sales fell 1.2% as both prices and volume fell. Used car values dropped the most in 27 years. Despite the weak performance at the end of the year, retail sales were up 9.2% in 2022, the second strongest year since 1993.
Key Indicators this Week
PPI – Wholesale prices followed the downward pattern of consumer prices in December, suggesting we have passed the peak of inflation. The December producer price index (PPI) declined 0.5%, the largest monthly drop since the pandemic began in 2020. Year-over-year PPI fell to 6.2% from the previous measure of 7.3% and is the lowest measure since March 2021. Lower wholesale costs should trickle down to consumer prices.
Housing – Last year turned out to be the worst year for the housing market in over 13 years. Sales of existing homes, which account for 90% of the market, fell 17.8% from a year ago with just slightly more than five million homes sold. This was the biggest annual decline since 2008. The one bit of good news for homebuyers is the rise in prices appears to be stalling. The median price of an existing home rose 2.3% from a year ago, the smallest increase since May 2020. More than half of the homes sold in December were on the market for less than a month. This compares to an average of 19 days in 2020.
The new home market was not much better last year. Surging mortgage rates and escalating costs made home buying more difficult as the year continued. Permits to build single-family homes, a measure of future activity, were the lowest in almost three years. Single-family home construction was down 10.6%, the largest one-year drop since 2009. Construction activity in December, while still negative, was slightly better than expected but capped a four-month slide. With mortgage rates coming off October peak levels, homebuilders are starting to feel more confident for business in 2023. Expectations for buyer traffic and sales improved to the highest level in three months. A report on new home sales is scheduled for next week and will wrap up the complete picture of the housing market in 2022.
Sarina Freedland – Senior Investment Officer
Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. This is for informational purposed only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.
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