In This Article:
December retail sales data showed the US economy ended 2024 growing at a solid pace amid questions over how quickly the Federal Reserve will cut interest rates.
The control group in Thursday's release, which excludes several volatile categories and factors into the gross domestic product (GDP) reading for the quarter, increased by 0.7%, above economists' estimates for 0.4% sales growth.
Headline retail sales rose 0.4% in December, less than the 0.6% economists had expected, according to Bloomberg data. Meanwhile, retail sales in November were revised up to 0.8% from a prior reading that showed a 0.7% increase in the month, according to Census Bureau data.
December sales, excluding auto and gas, rose 0.3%, below consensus estimates for a 0.4% increase.
"This was actually a strong report that boosts our fourth-quarter GDP growth estimate to 2.9% [from 2.7%]," Capital Economics chief North America economist Paul Ashworth wrote in a note to clients on Thursday.
A 4.3% rise in sales for miscellaneous store retailers led the gains, while a 2% drop in building material sales led the declines. Building material sales are not included in the control group.
"All told, this year's holiday shopping season was even stronger than last year's, as a resilient labor market has continued to support household income growth," Wells Fargo senior economist Tim Quinlan wrote in a note to clients on Thursday. "As long as households remain employed and are earning income, they likely will continue to spend. That leaves the outlook for retail sales in a healthy place as we kick off 2025."
The report comes as investors continue to monitor the health of the US economy closely. Last Friday, the December jobs report showed the US labor market ended 2024 in a stronger position than many investors had thought, leading them to believe the Fed may not slash interest rates as quickly as initially hoped.
As of Thursday morning, investors are pricing in a less than 50% chance the Fed cuts interest rates until at least the June meeting, per the CME FedWatch Tool.
“The strength in consumer spending and the labor market, elevated inflation readings -despite yesterday’s refreshingly mild core [inflation] print-, and the prospect of changes in tariff and immigration policy boosting inflation support our view that the Fed moves to the sidelines in the first half of the year,” Nationwide chief economist Kathy Bostjancic wrote in a note to clients on Thursday.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.