Weak US Retail Sales, Factory Data Heighten Recession Concerns

US retail sales fell by the most in a year and business equipment production slumped, raising concerns that the economy is losing momentum under the weight of tighter Federal Reserve policy.

The value of overall retail purchases broadly decreased 1.1% in December after a downwardly revised 1% drop in the prior month, Commerce Department data showed Wednesday. Separate figures showed a 1.3% decline in factory output last month that wrapped up the weakest quarter for manufacturing since the onset of the pandemic.

Taken together, the data show a consumer that’s losing steam and business investment falling, portending weaker growth and raising concerns that the economy may be inching closer to a recession. Combined with easing inflation, the figures put the Fed on track to further slow the pace of interest-rate hikes.

“The impact of a year of very aggressive central bank tightening and quantitative tightening are starting to bite the economy and they’re biting hard,” Bob Michele, chief investment officer at JPMorgan Asset Management, told Bloomberg Surveillance.

Ten of 13 retail categories fell last month, including motor vehicles, furniture and personal care stores. The value of sales at gasoline stations slumped 4.6% as prices steadily dropped. Excluding gasoline and autos, retail sales fell 0.7%. The figures aren’t adjusted for inflation.

While a strong jobs market has supported shoppers, Americans are still feeling strained — the saving rate is near a record low and credit-card balances have surged.

The data cap a year in which retail sales rose 9.2%, the second-most ever in figures back to 1993, though it also reflects rapid inflation. Resilient spending has been a source of frustration for the Fed as it tries to weaken demand across the economy, and consumers have played a role in keeping prices elevated.