This week’s economic data was headlined by Producer Price Index (PPI) and Retail Sales releases for December, which revealed further disinflation in goods prices and demonstrably weaker consumer spending during the fourth quarter of 2022. On the inflation front, PPI data underscored the trend away from spending on goods in favor of services, with prices for the former sliding 1.6% last month, the second largest monthly decline of 2022 (-1.8% July), driven by another month of lower energy costs, an unexpected drop in food prices and further moderation in services outlays. Regarding retail sales, last year ended with a whimper, with headline consumer purchases declining in the last two months of the 4th quarter, typically holiday-related bounce territory for retailers, as the cumulative effects of higher interest rates, elevated inflation and surging credit card debt weighed on spending patterns across a wider swath of the economy that had been seen for most of 2022. Indeed, holiday sales during the last two months of the year (excluding autos, gas and restaurants) rose by a mere 5.3% versus the same period in 2021, short of the National Retail Federation’s forecast of 6% to 8% growth. Perhaps more daunting, the sales data are not adjusted for inflation, which ran hotter than receipts for many types of goods and services, indicating that volumes are also starting to wane.
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