Agencies
WASHINGTON
US retail sales increased in December as households bought motor vehicles and a range of other goods, pointing to strong demand in the economy and further reinforcing the Federal Reserve’s cautious approach to cutting interest rates this year.
The report from the Commerce Department on Thursday prompted economists to upgrade their economic growth estimates for the fourth quarter to just shy of the July-September quarter’s brisk pace.
It followed news last week of a surge in nonfarm payrolls in December and a drop in the unemployment rate to 4.1 percent from 4.2 percent in November. Though underlying inflation slowed last month, overall consumer prices increased by the most in nine months. Labor market strength is driving spending through higher wage growth.
“No one can make a case that the Fed has any urgent need to cut interest rates from this retail sales report,” said Carl Weinberg, chief economist at High Frequency Economics. “No push from monetary stimulus is needed with the economy already at full employment.”
Retail sales rose 0.4 percent last month after an upwardly revised 0.8 percent gain in November, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.6 percent after a previously reported 0.7 percent rise in November. Retail sales increased 3.9 percent year-on-year in December.
Sales at auto dealerships rose 0.7 percent after accelerating 3.1 percent in November. Receipts at furniture stores shot up 2.3 percent while those at clothing retailers rebounded. Sporting goods, hobby, musical instrument and bookstore sales jumped 2.6 percent.
Receipts at miscellaneous store retailers soared 4.3 percent. Online store sales rose only 0.2 percent. But receipts at food services and drinking places, the only services component in the report, fell 0.3 percent after edging up 0.1 percent in November. Economists view dining out as a key indicator of household finances. Freezing temperatures could have kept consumers at home.
A column chart titled “Monthly change in US retail sales” that tracks the metric over the last year. Retail sales rose 0.4 percent in December.
A column chart titled “Monthly change in US retail sales” that tracks the metric over the last year. Retail sales rose 0.4 percent in December.
Retail sales excluding automobiles, gasoline, building materials and food services surged 0.7 percent last month after an unrevised 0.4 percent gain in November. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
A column chart titled “Monthly change in US core retail sales” that tracks the metric over the last year. Core retail sales rose 0.7 percent in December.
Economists estimated that consumer spending grew at a 3.3 percent annualized rate in the fourth quarter after accelerating at a 3.7 percent pace in the July-September quarter. Capital Economics raised its GDP growth forecast for the last quarter to a 2.9 percent rate from a 2.7 percent pace earlier.
The economy grew at a 3.1 percent pace in the July-September quarter, well above the 1.8 percent pace that US central bank officials regard as the non-inflationary growth rate.
The Fed has forecast only two rate cuts this year, down from the four it had projected in September, when it launched its policy easing cycle. That was in acknowledgement of the potential risks from President-elect Donald Trump’s plans for broad tariffs, mass deportations of undocumented immigrants and tax cuts, which economists have warned are inflationary.
The Fed is not expected to cut rates this month. Its benchmark overnight interest rate has been reduced by 100 basis points to the 4.25 percent -4.50 percent range, having been hiked by 5.25 percentage points in 2022 and 2023.
