U.S. Retail Sales Posted Biggest Decline in One Year

U.S. equities finished lower amid concerns about the possibility of an economic slowdown and the Fed keeping interest rates high for a long period of time to fight inflation. U.S. retail sales fell by the most in a year in December, pulled down by declines in purchases of motor vehicles and a range of other goods, putting consumer spending and the overall economy on a weaker growth path heading into 2023.

Retail sales fell 1.1% in December; Core retail sales dropped 0.7%; Manufacturing production tumbled 1.3% over the period; Producer prices fell 0.5%; still up 6.2% YoY.

The second straight monthly decrease in retail sales, which are mostly goods, is jeopardizing production at factories. Manufacturing output recorded its biggest drop in nearly two years in December, while monthly producer prices also tumbled, other data showed on Wednesday.

The widespread signs of weakening demand and subsiding inflation are likely to encourage the Federal Reserve to further scale back the pace of its rate increases next month, but not pause its monetary policy tightening anytime soon as the labor market remains tight. The U.S. central bank is engaged in its fastest rate hiking cycle since the 1980s. The Dow Jones and S&P 500 have dropped every day in this holiday-shortened week, while the Nasdaq was in the red for a second-straight session.

Home Depot (HD) was the biggest drag on the Dow, as its shares sank 4% after the U.S. Commerce Department reported housing starts and building permits fell more than anticipated last month. Shares of rival Lowe’s (LOW), as well as home builders such as D.R. Horton (DHI) and PulteGroup (PHM), slid. Shares of 3M (MMM) lost 3.5%. Procter & Gamble (PG) was down 2% after the consumer products maker’s profit and sales appeared to be quite downbeat. American Express (AXP) and Caterpillar (CAT) shares also dipped 2%.

Google (GOOG, GOOGL) is laying off 12,000 employees, or 6% of its workforce, adding to the slew of major U.S. tech companies cutting jobs amid fears of an oncoming recession. “These are important moments to sharpen our focus, reengineer our cost base, and direct our talent and capital to our highest priorities,” CEO Sundar Pichai wrote in a memo. “The fact that these changes will impact the lives of Googlers weighs heavily on me, and I take full responsibility for the decisions that led us here.”

Major stock market indexes in Europe are trying to recover this European afternoon ahead to the final day of the World Economic Forum (WEF) in Davos. Investors also somewhat shifted their focus and hope to the next week's economic schedule, which includes various reports on output across the Old Continent, most notably the one on consumer confidence in the Eurozone. The German DAX is currently trading 0.42% higher as Zalando SE jumped by 4.96%. The British FTSE 100 rose by 0.13%, with Sse PLC (SSE.L) advancing by 2.14%. The French CAC 40 increased by 0.54%. The Euro Stoxx 600, meanwhile, gained 0.22%.

Bank of Japan (BoJ) Governor Haruhiko Kuroda estimated on Friday that Japanese inflation will be below 2% overall in fiscal 2023. “… we decided to keep the current extremely accommodative monetary policy for the time being,” he said, adding that the BoJ hopes wage growth will start accelerating, which will help inflation remain at target “in a stable and sustainable manner.”