Growing Recession Concerns... US December Retail Sales Down 1.1%

[Asia Economy New York=Special Correspondent Joselgina] As uncertainty surrounding the economic recession grows, it has been revealed that Americans have reduced their spending even during the year-end shopping season. At the same time, producer prices have slowed down, leading to evaluations that the impact of the Federal Reserve's (Fed) interest rate hikes is beginning to affect the real economy.

[Image source=AP Yonhap News]

According to the U.S. Department of Commerce on the 18th (local time), retail sales in December last year decreased by 1.1% compared to the previous month. This is the largest decline in a year. The decrease was even greater than Wall Street experts' expectations (-0.9%).

Typically, November to December is considered the peak season for year-end shopping. However, during this period, U.S. retail sales continued to decline by over 1% for two consecutive months. The previously released November retail sales were also revised downward to a 1% decrease on this day.

The Wall Street Journal (WSJ) reported, "U.S. consumers reduced spending during the year-end shopping season due to rising interest rates, persistently high inflation, and concerns about economic slowdown," adding, "This adds to the signals that the U.S. economy is slowing down." Core retail sales in December, excluding gasoline and automobiles, also decreased by 0.7% compared to the previous month.

In particular, these indicators have drawn attention as many economists warn that a recession will occur this year. Consumer spending, which accounts for two-thirds of the U.S. real economy, is considered a comprehensive measure to evaluate economic health.

According to WSJ, a recent survey of U.S. economists showed that the average probability of entering a recession within the next 12 months was 61%. This is similar to the 63% recorded in the October survey last year. Despite recent signs of easing inflation, as the central bank Fed is expected to maintain high interest rates for the time being, three-quarters of respondents predicted that a 'soft landing' would be difficult this year.

Joseph Brusuelas, Chief Economist at RSM, said, "The lagged effects of high inflation are placing a significant burden on American households," and predicted a mild recession in 2023. On the same day, industrial production in December also fell more than expected. It decreased by 0.7% compared to the previous month, significantly underperforming market expectations (-0.1%). The employment downturn centered on big tech continues, with Microsoft (MS) announcing layoffs of about 10,000 employees by March.

Additionally, further indicators suggesting that U.S. inflation is gradually easing were released. According to the U.S. Department of Labor, the Producer Price Index (PPI) in December last year rose 6.2% compared to the same month the previous year. This figure is more than 1 percentage point lower than the previous month's increase (7.3%) and is the lowest level in the past nine months. The December PPI also fell 0.5% compared to the previous month, marking the largest decline since April 2020, early in the pandemic.

Core PPI, which excludes volatile food and energy prices, rose 0.1% compared to the previous month and 4.6% compared to the same month last year, showing a slowdown in the rate of increase. WSJ evaluated, "Although inflation remains historically high, it is showing signs of cooling due to decreased demand."

Currently, the Fed is preparing for the first Federal Open Market Committee (FOMC) meeting of the year, scheduled for January 31 to February 1, where it will decide the U.S. benchmark interest rate. Given the recent clear easing of inflation indicators, the market expects the Fed to possibly reduce the rate hike to 0.25 percentage points at this meeting. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on this day reflected over a 93% probability of a "baby step" (0.25 percentage point rate hike) in February.

However, James Bullard, President of the Federal Reserve Bank of St. Louis and a representative hawk, stated in an interview on the same day, "To reach a restrictive level, interest rates need to be at least above 5%," and added, "A 0.5 percentage point increase is appropriate at this meeting." He predicted that inflation would remain high until the end of this year.

This content was produced with the assistance of AI translation services.