BOSTON — Massachusetts retailers saw sluggish sales over the holidays and still face pressures from rising labor costs and the lingering pinch of inflation.

That’s according to the Retailers Association of Massachusetts annual survey, which found employers in the state saw an estimated 1.2% increase in sales in November and December over the same period last year. That’s well below the typical 4% sales increase, the group noted.

Meanwhile, 50% of employers who participated in the survey reported the number of transactions in the recent holiday season dropped from the prior year; a figure which grows to 75% when adding in those which reported flat numbers of transactions for the season, according to the report’s authors.

Jon Hurst, the association’s president, said while Main Street merchants ended the year on a positive note, the holiday season may be a “cautionary warning” for the year ahead.

“Inflation and rising interest rates are affecting consumers and small businesses alike, and keeping balance sheets in positive territory both at home and on Main Street is becoming a challenge,” he said.

Overall, retailers saw positive outcomes during the previous year, with an average annual dollar sales increase of 5.4% over 2021, Hurst noted.

But those gains were tempered by increased operating costs throughout the year, which the retailers association said “took a toll” on many small businesses.

Of survey respondents, 43% reported lower profitability in 2022 over the previous year; a number which rose to 74% when adding in those which reported flat profitability for the entire year.

Inflation — which has been hovering at 40-year highs over the past year — put a squeeze on Americans’ wallets, but many small business owners have also been impacted.

Inflation declined to 6.5% in December compared with a year earlier, the Biden administration announced Thursday. It was the sixth straight year-over-year slowdown, down from 7.1% in November.

Nationally, retail sales from Nov. 1 to Dec. 24 were 7.6% higher than they were at the same time in 2021, partially due to higher prices, according to the National Retail Federation, which had predicted a 6% to 8% rise in holiday sales.

Still, the group points out the increased holiday sales from 2021 to 2022 is a “fraction” of what it was from 2020 to 2021, when people were eager to shop after lockdowns and had more disposable income from stimulus payments.

Consumers bought a record $886.7 billion in gifts in November and December 2021, a nearly 14.1% increase over 2020, according to the federation. By comparison, holiday retail sales in 2020 were up 8.3% from 2019, while sales in 2019 were up 4.1% from 2018, according to the federation.

In Massachusetts, employers ended a seesaw 2022 less confident in the economy than the previous year, but are still optimistic about their prospects in the coming year, according to a recent report by the pro-business group Associated Industries of Massachusetts.

AIM’s Business Confidence Index, which draws upon surveys of about 140 businesses, slipped 4.7 points to 54.0 in December, which is about 2.7 points lower than a year ago.

John Regan, AIM’s CEO and president, said employers spent much of the past year trying to adjust to the Federal Reserve’s efforts to harness inflation without sending the economy into recession, and remain concerned about rising prices and slowing growth.

“It was a year in which employers faced a multitude of challenges, from untangling supply systems and managing labor costs, to retaining workers and processing new patterns of post-COVID customer behavior,” he said. “The good news is that Massachusetts remains well positioned as a global center of technology and commerce and should be able to ride out an economic slowdown better than most states.”

Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhinews.com.

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