US Retail Sales Show Strong Growth in December

Retail sales in the United States ended 2024 on a high note, with December showing a 0.4% increase. This follows a robust 0.8% gain in November, reflecting strong consumer demand for goods. Year-over-year, retail sales were up 3.9%. Key categories that contributed to this growth include:

• Auto sales: Increased by 0.7% after surging 3.1% in November.
• Furniture stores: Sales rose by 2.3%, showcasing solid household spending.
• Sporting goods and hobbies: A significant 2.6% jump in December.
• Clothing retailers: Rebounded with a 1.5% increase.

Despite these gains, online sales growth slowed to just 0.2%, and colder temperatures led to a decline in dining out (-0.3%) and building material store sales (-2.0%). Higher gas prices boosted gas station receipts by 1.5%.

Labor Market Strength Supports Consumer Spending
A strong labor market remains a pillar of US economic resilience. In December, nonfarm payrolls added 256,000 jobs, and the unemployment rate dropped to 4.1% from 4.2% in November. Although initial unemployment claims rose slightly to 217,000 for the week ending January 11, the overall job market remains healthy. Wage growth and low layoffs continue to support household spending.

Core Retail Sales Drive Economic Growth
Core retail sales, which exclude volatile categories like automobiles and gasoline, jumped by 0.7% in December after a 0.4% gain in November. This surge closely aligns with consumer spending, a critical driver of GDP. Economists estimate consumer spending grew at an annualized rate of 3.3% in Q4, just below Q3’s brisk 3.7% pace.

The US economy is projected to have grown by 2.9% in Q4, buoyed by robust consumer activity. This continues to outpace the Federal Reserve’s estimated non-inflationary growth rate of 1.8%.

Federal Reserve Maintains Cautious Approach on Interest Rates
While inflation has eased, the Federal Reserve is maintaining a cautious approach to interest rate cuts. Its benchmark rate currently stands at 4.25%-4.50%, following aggressive hikes in 2022 and 2023. The Fed has forecast only two rate cuts in 2025, compared to four initially projected. Analysts don’t expect a rate cut in January, with mid-year reductions more likely.

Challenges to Watch in 2025
The economic outlook remains strong, but risks loom on the horizon. Potential tariffs from the incoming administration could increase consumer goods prices, placing a disproportionate burden on low-income households. Immigration restrictions may also limit labor market supply, potentially constraining job growth and economic momentum.

Key Takeaways for 2025

• Retail sales are growing steadily, with December marking another strong month.
• The labor market remains resilient, with unemployment at 4.1% and consistent wage growth.
• The Federal Reserve is holding back on aggressive rate cuts despite easing inflation.
• Risks from tariffs, immigration policy, and inflation could impact growth.

As 2025 begins, the US economy is well-positioned for continued growth, supported by strong consumer demand and a healthy labor market. However, businesses and policymakers must remain vigilant to navigate emerging challenges.

Source: Reuters.com