Strong Retail Sales Signal Robust Economic Growth
The U.S. economy ended 2024 on solid footing, with December retail sales data showing continued consumer strength despite uncertainty over Federal Reserve interest rate cuts.
The control group of retail sales, which excludes volatile categories and directly contributes to GDP calculations, rose 0.7%, surpassing economists’ forecasts of 0.4%.
Headline retail sales increased 0.4%, slightly below the 0.6% expected, but November’s sales were revised up to 0.8% from an earlier 0.7% estimate, according to Census Bureau data.
Key Retail Sector Performance
The December retail data showed mixed performance across categories:
- Miscellaneous store retailers saw the biggest gains, with sales rising 4.3%.
- Building material sales declined 2%, leading the losses (this category is not included in GDP calculations).
- Retail sales excluding auto and gas rose 0.3%, slightly below expectations of 0.4% growth.
Paul Ashworth, chief North America economist at Capital Economics, noted:
“This was actually a strong report that boosts our fourth-quarter GDP growth estimate to 2.9% from 2.7%.”
Resilient Labor Market Supports Consumer Spending
A strong job market has helped sustain consumer spending, providing a positive outlook for retail sales heading into 2025.
Tim Quinlan, senior economist at Wells Fargo, stated:
“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. As long as households remain employed and are earning income, they will likely continue to spend.”
The December jobs report, released last Friday, reinforced these trends, showing stronger-than-expected employment growth.
Federal Reserve Rate Cut Expectations Shift
Despite solid retail sales and a strong labor market, investors remain uncertain about the timing of the Fed’s first interest rate cut.
As of Thursday morning, the CME FedWatch Tool showed:
- Less than a 50% chance that the Fed will cut rates before June 2025.
- Earlier expectations of a rate cut in March or May have faded due to economic resilience.
Kathy Bostjancic, chief economist at Nationwide, wrote:
“The strength in consumer spending and the labor market, elevated inflation readings, and potential policy shifts in tariffs and immigration all support our view that the Fed will stay on the sidelines in the first half of the year.”
Looking Ahead to 2025
With consumer spending still robust, the U.S. economy remains on solid footing entering 2025. However, interest rate uncertainty, potential tariff hikes, and inflation risks could shape the economic landscape in the coming months.
Investors will closely watch incoming inflation data, Fed statements, and retail trends to gauge the likelihood of monetary policy shifts in the first half of 2025.
