The trend: Consumers are pulling back on spending.

• US household spending fell 0.2% month-over-month (MoM) in December, per the US Commerce Department. After adjusting for inflation, spending fell 0.3% MoM.
• That followed a downwardly revised 0.1% MoM decrease in November (or 0.2% after adjusting for inflation).
• That cooldown comes even though inflation continues to ease; the core personal consumption expenditures (PCE) price index, which removes volatile food and energy prices, rose 0.3% MoM in December and 4.4% year-over-year (YoY). In November, core PCE was up 0.2% MoM and 4.7% YoY.
• We expect US retail sales growth to slow to 2.9% this year as consumers grow more conservative in their spending.

Adjusting to the new normal: The pandemic caused retail sales to soar, which drove many merchants to rapidly hire staff. For example, Amazon more than doubled the size of its global workforce between Q4 2019 and Q4 2021. But with retail growth slowing and operating expenses rising, companies of all sizes and business models are making structural changes as they realize that the halcyon days of pandemic-fueled expansion are in the rearview mirror.

• Amazon is laying off more than 1% of its headcount (about 18,000 employees), online furniture retailer Wayfair is cutting around 10% of its workers, and H&M is eliminating about 1% of its jobs.
• Direct-to-consumer (D2C) basics retailer Everlane is cutting 17% of its corporate employees, D2C athletics brand Gymshark is laying off more than 7% of its staff, and subscription apparel retailer Stitch Fix is reducing its salaried headcount by 20%.
• Luxury retailer Saks.com plans to cut around 3.5% of its staff, while sportswear retailer Foot Locker is eliminating “a number of” corporate and support roles (it did not reveal the number in its SEC filing).
• Toymaker Hasbro is laying off 15% of its workforce and consumer packaged goods conglomerate Helen of Troy—parent company of brands like Oxo and Vicks—is cutting roughly 10% of its staff.

Slimmer profits: While there is growing optimism that the US can avoid a recession, that doesn’t mean companies are in the clear.

• Costs are rising due to commodity price spikes, lingering supply chain challenges, and rising labor fees. That's driven down gross margins at Clorox to about 36% from 45% before the pandemic, per The Financial Times.
• Competition is steep given that many shoppers are trading down to lower-priced products or stores.

The big takeaway: While it seems increasingly unlikely that the bottom will fall out of the economy, slower growth will likely be the new normal for some time.

• Retailers would be wise to adjust by looking for ways to streamline their operations as long as those cost-cutting measures don’t come at the expense of the customer experience.

This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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