Retail sales fell 0.6% in November as consumers feel the pressure from inflation

Consumers pulled back on spending in November, failing to keep up with even a muted level of inflation for the month, the Commerce Department reported Thursday.

Retail sales for the month declined 0.6%, even worse than the Dow Jones estimate for a 0.3% drop. The number is not adjusted for inflation as gauged by the Labor Department's consumer price index, which increased 0.1% in November, which also was below expectations.

Measures that exclude autos and both autos and gas sales both showed 0.2% declines.

Stocks fell sharply following a mostly disappointing round of economic data released Thursday morning. The Dow Jones Industrial Average was off nearly 500 points in early trading.

The pullback was widespread across categories. Furniture and home furnishings stores reported a decrease of 2.6%, building materials and garden centers were off 2.5% and motor vehicle and parts dealers dropped 2.3%.

Even with declining gas prices, service stations sales were down just 0.1%.

Online sales also decreased, falling 0.9%, while bars and restaurants increased 0.9% and food and beverage stores rose 0.8%.

On a year-over-year basis, retail sales increased 6.5%, compared to a CPI inflation rate of 7.1%.

"With weak global growth and the strong dollar compounding the domestic drag from higher interest rates, we suspect this weakness is a sign of things to come," Andrew Hunter, senior U.S. economist at Capital Economics, wrote of the retail report.

In other economic news Thursday, the Labor Department said weekly jobless claims fell to 211,000, a decline of 20,000 from the previous period and well below the Dow Jones estimate for 232,000. Continuing claims, which run a week behind, nudged higher to 1.671 million.

Also, separate surveys from regional Federal Reserve districts showed contraction in manufacturing activity in December.

The Empire State Manufacturing Survey, which measures activity in the New York region, posted a reading of -11.2, against the estimate of -0.5.

That represents the percentage difference between companies reporting expansion against contraction. This month's reading represented a drop of some 16 points into contraction territory, owed in good part to a slide in the general business conditions index. Inventories in the region also fell, though price indexes were little changed.

Similarly, the Philadelphia Fed survey rose 6 points but was still negative at -13.8, against the -12 estimate. Sharp negative readings for new orders, unfilled orders and delivery times weighed on the index. However, prices eased considerably for the region, with both the prices paid and received measures falling.

"With exports now suffering from the strong dollar, and a global recession looming, we expect that further weakness in manufacturing lies in store," Hunter said.