US retail sales slumped in December, dragged by sales at department stores and gasoline stations
Despite the drop, U.S. retails sales in October were stronger than expected AFP

U.S. retail sales had the first drop in seven months, indicating more careful but still resilient consumers. The contraction was smaller than expected.

Adjusted sales fell 0.1% in October on a monthly basis and increased 2.5% from a year earlier, the Commerce Department said in a statement Wednesday. Economists surveyed by Reuters estimated a monthly drop of 0.3%.

The sales increase in September was revised upwards to 0.9% from a previous reading of 0.7%

Sales at gasoline stations fell 0.3% last month as prices reacted to the drop of oil prices. Furniture and home items decreased 2%.

Items with monthly gains include food and beverage, electronics and appliances.

The softer data on consumption comes one day after another report released Tuesday showed that annual inflation in the U.S. slowed to the lowest level since July. The consumer price index rose 3.2% in October from a year earlier and was unchanged from September.

Markets reacted to the inflation data with optimism that the Federal Reserve may keep interest rates unchanged in the next meetings and possibly start reducing the rate sooner than expected.

The Fed decided on Nov. 1 to keep the U.S. key rate unchanged in the range of 5.25% to 5.5%. It's the highest level in 22 years, after the rate was increased 11 times since early last year.

The Home Depot said Tuesday in its quarterly earnings report that it expects customers to be more careful with their spending in the coming months. The home improvement retailer forecasts annual sales to fall 3% to 4% from 2022. Previously, the company's expectation was for a drop of 2% to 5%.

Target Chief Executive Officer Brian Cornell told CNBC that customers are already cutting their discretionary spending, buying less apparel, items for their homes and toys.

Cornell said that the company plans to have a very conservative approach on inventory and lean on seasonal items as consumers seem to be enjoying special occasions, like Halloween, summer, and Mother's/Father's Day.