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Economic Report: U.S. retail sales rise at slower pace in November as consumers face higher prices

The numbers: Amazon, Home Depot and other retailers posted a small increase in sales in November, but high inflation suggests consumers bought fewer goods and services than expected at the start of the holiday shopping season.

Retail sales rose 0.3% last month on a seasonally adjusted basis, the government said Wednesday.

Economists polled by The Wall Street Journal had forecast a 0.8% increase.

Yet the rise in sales was outstripped by a higher cost of living. Consumer prices jumped 0.8% in November to push the yearly rate of U.S. inflation to a 39-year high of 6.8%.

Retail sales fell 0.5% in November if adjusted for inflation.

Retail sales are a big part of consumer spending and offer cues on the strength of the U.S. economy.

Big picture: Americans have lots to spend because of government stimulus payments, rising wages and high savings amassed during the pandemic, but rising prices are making them rethink what and how much they buy.

The big danger is if high inflation persists and price increases become embedded in the economy. That could force the Federal Reserve to jack up interest rates, raise business costs and further discourage consumers .

The Fed still believes inflation will cool off in 2022, but the central bank is worried enough to phase out its stimulus for the economy a lot faster than it had planned. The Fed is expected to announce its new strategy on Wednesday afternoon.

Key details: November retail results were held down in part by a small decline at auto dealers, which account for 20% of all retail sales.

Yet sales also fell sharply at department stores and they were flat at internet retailers. These are companies that tend to benefit the most from post-Thanksgiving holiday sales events such as Black Friday and Cyber Monday.

Sales also slumped 4.6% at electronics stores and they declined at pharmacies.

The only bright spot: Sales jumped 1% at bars and restaurants. Higher spending on food outside the home is generally viewed as a sign that consumers have confidence in the economy.

Some economists contend that Americans are shifting their spending to services such as dining out, travel and recreation with coronavirus restrictions more relaxed. They mostly bought goods early in the pandemic.

Shortages of popular items such as consumer electronics could also be dampening sales. Retailers can’t stock enough products because of major delays at ports.

Another possible explanation for weak November sales: Americans spent more in October than usual to get what they wanted before stores ran out. Retail sales rose a revised 1.8% in October.

By and large, retailers have done quite well in the past year. Retail sales have surged 18.2% in the past 12 months, a robust number even if inflation is taken into account.

It’s unlikely that consumers can continue to spend at that pace, however.

What they are saying? “The strong early start to the holiday shopping season fizzled out pretty fast in November, casting a sour mood heading into year end,” said senior economist Sal Guatieri of BMO Capital Markets.

“Inflation, and the possible need for much higher interest rates to control it, poses a meaningful risk to the economic outlook.”

Market reaction: The Dow Jones Industrial Average

and S&P 500

were set to open lower in Wednesday trades.

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