U.S. Retail Sales (December 2024)

Retail sales growth remained strong in December 

• U.S. retail and food services sales rose 0.4% month-on-month (m/m) in December, down from the upwardly revised 0.8% increase seen in November (previously 0.7%), and slightly below the consensus forecast calling for a 0.6% gain. 
• A drop in food services sales weighed on the headline (-0.3% m/m). On a year-over-year basis, growth decelerated rapidly last year, slowing to 2.4% down from 11.4% in December of 2023. Excluding the services category, retail sales were up 0.6% on the month. 
• December brought another sizeable increase in sales of vehicles and parts, which rose 0.7% m/m. Sales at gasoline stations advanced by 1.5%, due to higher prices at the pump. Sales at building materials and equipment stores declined by 2% - a third consecutive monthly decline. 
• Sales in the "control group", which the excludes volatile components above (i.e., gasoline, autos and building supplies) and is used in the estimate of personal consumption expenditures (PCE), rose by a robust 0.7% m/m, an acceleration from the 0.4% gain in November.
• Sales across most other brick and mortar retailers were also higher on the month, with the strongest gains seen in miscellaneous store retails (+4.3%), retailers selling sporting and hobby items (+2.6%) and furniture and home furnishings stores (+2.3%). 
• Non-store retailers edged higher by only 0.2%, following a sizeable gain the prior month.

Key Implications

• Despite the headline retail sales figure coming in below expectations, growth in core sales remained very healthy in December, suggesting U.S. consumers ended 2024 on a high note. It’s easy to see why. The labor market remained strong, continuing to add jobs through the end of the year, while inflation has subsided (particularly in the goods category), and household wealth remains elevated. Even with recent volatility in the equity market, the S&P 500 is still up 25% from a year ago. Anecdotally, the Fed’s latest Beige Book reaffirmed robust consumer spending at the end of last year, noting that “consumer spending has moved up moderately, with most districts reporting strong holiday sales that exceeded expectations.” For the fourth quarter as a whole, we expect inflation-adjusted consumer spending to rise somewhere in 3%-3.5% range, in line with the third quarter.
• Looking ahead, we anticipate that consumer spending will remain healthy, although growth is likely to moderate closer to 2%, alongside some moderation in job growth. The risk of higher-than-expected inflation—and consequently higher interest rates—amid a series of anticipated policy changes under the incoming administration could pose some downside risk to the consumer spending outlook.

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