The Grinch comes to retailers | CNN Business

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Weaker-than-expected retail sales in November dampened market sentiment on Thursday and increased the odds that the Fed’s rate hike to combat inflation could tip the economy into recession.

what happens: US retail sales, which measure the total amount of money stores make from selling goods to customers, fell 0.6% in November, the weakest performance in nearly a year. The drop worried economists, who expected monthly sales to contract by just 0.1%. It’s also a sharp reversal from October’s 1.3% increase in sales.

This is a bad sign for the economy. Just last month, Bank of America CEO Brian Moynihan told CNN that the continued strength of the American consumer almost single-handedly ended the recession. Consumer spending is a major driver of the economy, and the last two months of the year can account for about 20% of all retail sales — even more for some retailers, according to National Retail Federation data.

Market mania: The weak report meant that spending faltered just as the holiday season got underway, a critical time for retailers to boost profits and get rid of excess inventory. Investors weren’t happy about that.

Costco (COST) shares closed 4.1% lower Thursday, Target (CBDY) was down 3.2%, Macy’s (M) was down 3.5%, and Abercrombie & Fitch (ANF) was down 6.2%.

The entire sector took a hit — the VanEck Retail ETF, with Amazon (AMZN), Home Depot (HD) and Walmart (WMT) topping its top three holdings, fell 2.2%. The SPDR S&P Retail ETF, which tracks all retail S&P stocks, was down 2.9%.

The weak sales are likely to continue, analysts say, and if that happens, retailers’ earnings and fourth-quarter earnings will take a hit.

“Last year’s headwinds are catching up with consumers and forcing them to be more conservative with their holiday shopping this winter,” warned Ellen Zentner, an economist at Morgan Stanley, in a note.

Federal Reserve Factor: The November report may suggest that consumers are feeling the compounding of very high inflation and painful rate hikes from the central bank. This retail sales data adds to recession fears, as it suggests that consumers may become more cautious with their spending.

Households are increasingly relying on their savings to sustain their spending, and many households are turning to credit to offset the burden of rising prices. “These trends are unsustainable, and the current credit bulge is a real risk, especially for families at the lower end of the income scale,” said Gregory Daco and Lydia Bosor, economists at EY Parthenon.

While US bank accounts are still fairly strong, they are starting to wane. In the third quarter of 2022, credit card balances jumped 15% year over year. This is the biggest annual jump since the Federal Reserve Bank of New York began tracking the data in 2004.

“Against this backdrop, we expect consumers to take more control of their spending in the coming months,” said Daco and Bassour. “Real consumer spending should grow modestly in the last quarter of the year, but we expect it to barely grow in 2023.”

minimum: If the Bank of America Moynihan was right, the American economy is in trouble.

Mortgage rates in the United States fell again this week, marking the fifth consecutive decline.

The average 30-year mortgage rate was 6.31% in the week ended Dec. 15, down from 6.33% in the previous week, according to Freddie Mac. A year ago, the 30-year flat rate was 3.12%, according to my colleague Anna Bahni.

This is a sharp reversal from the upward trend in prices that we have seen for most of 2022. These increases have spurred the Federal Reserve’s unprecedented campaign of aggressive rate hikes to tame spiraling inflation. But mortgage rates have eased in the past several weeks, after data showed inflation had finally peaked.

The Federal Reserve announced on Wednesday that it will continue to raise interest rates – albeit by a smaller amount than it has been.

“Mortgage rates continued their downward trajectory this week, as weak inflation data and a modest shift in Fed monetary policy reverberated through the economy,” said Sam Khater, chief economist at Freddie Mac.

“The good news for the housing market is that the recent declines in prices have stabilized purchase demand,” he added. “The bad news is that demand remains very weak in the face of affordability hurdles that remain very high.”

US regulators have been given unprecedented access to the full audits of Chinese companies such as Alibaba (BABA) and (JD) after threatening to expel the tech giants from US exchanges if they do not receive the data.

The announcement marks a major breakthrough in the years-long standoff over how Wall Street-listed Chinese companies should be regulated. This will come as a huge relief to these companies and the investors who have invested billions of dollars in them, says my colleague Laura He.

“For the first time in history, we are able to conduct full and thorough inspections and investigations to root out potential problems and hold companies accountable to fix them,” Erica Williams, chair of the company’s Public Accounting Oversight Board, said in a statement Thursday. , adding that this arrival was “historic and unprecedented”.

More than 100 Chinese companies have been identified by the US securities regulator as facing delisting in 2024 if they do not turn in audits of their financial statements.

On Friday, the Chinese securities regulator said it looked forward to working with US officials to further strengthen future audit oversight of US-listed companies.

There are more than 260 Chinese companies listed on US exchanges, with a combined market capitalization of more than $770 billion, according to recent calculations published by the US-China Economic and Security Review Commission.

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