Holiday Shopping Season Could Still Turn Out Naughty or Nice for Retailers

The disappointing numbers for November could indicate there was some level of early holiday spending in October from consumers, including at e-commerce players such as Amazon.com. Online retailers saw no growth in sales compared with October. The stores that saw sales fall outright were the types that consumers might turn to for gifts: Electronics and appliance stores and department stores posted the steepest declines in November after seeing healthy growth in October. By contrast, restaurant and grocery-store spending continued increasing at a healthy pace.

What’s more, the early picture for December doesn’t look great. Credit-card data from

Citigroup

shows that year-over-year retail spending growth has slowed in the first two weeks of December.

In fact, a holiday pull-forward would actually be the more optimistic reading of the November figures. A more cautious takeaway is that declining consumer sentiment, which has been diverging from spending behavior, is finally starting to drag on actual spending. As of October, consumer sentiment—as measured by the University of Michigan—had declined 28% since the start of 2020, falling to the lowest in a decade. At the same time, retail sales increased 21% over the same period.

So far, some of that decline in consumer sentiment could have been brushed off as noise. Historically, it has actually been the highest earners who tend to submit the most dismal survey responses, while the bottom third of the income spectrum is least likely to complain, according to RBC Capital Markets. But there are reasons to suspect that low-income consumers are starting to feel the pinch from inflation, especially as savings from stimulus payments are worn down. The personal savings rate came down to pre-pandemic levels as of October, according to data from the U.S. Bureau of Economic Analysis.

For now, consumer sentiment is worth watching but still not a cause for panic. November sales look limp compared with October, but they were up 18.2% from a year earlier, and that still represents an acceleration from October’s on-year growth of 16.3%. More weakness in December, typically a strong month for retail spending, would be the real red flag.

Write to Jinjoo Lee at jinjoo.lee@wsj.com