Retail sales rose at a slower pace than Wall Street expected in December, as investors closely watched the pace of economic growth amid questions about how quickly the Federal Reserve will cut interest rates.
Retail sales rose 0.4% in December. Economists had expected spending to rise 0.6%, according to Bloomberg data. Meanwhile, retail sales in November were revised to 0.8% from a previous reading that showed a 0.7% increase in the month, according to statistics office data.
December sales, excluding automobiles and gas, rose 0.3%, below the consensus estimate of a 0.4% increase. The control group in Tuesday’s issue, which excludes many categories and volatile factors in the quarter’s GDP reading, rose 0.7 percent, beating economists’ estimates of sales growth by 0.4 percent.%.
Paul Ashworth, chief North American economist at Capital Economics, wrote in a note to clients on Thursday: “This was actually a strong report that reinforces our estimate of fourth-quarter GDP growth to 2.9%”.
A 4.3% increase in diversified retail sales led gains, while a 2% decline in building materials sales led declines. Sales of building materials are not included in the control group.
The report comes as investors continue to closely monitor the health of the US economy. Last Friday, December’s jobs report showed that the U.S. labor market ended 2024 in a stronger position than many investors thought, leading them to believe that the Fed might not cut interest rates as quickly as it initially hoped.
As of Thursday morning, investors estimate a probability of less than 50% of the Fed’s rate cut until at least the June meeting.
How have the key sectors performed?
Retail sales rose at a slower pace than Wall Street expected in December. As investors closely watched the pace of economic growth amid questions about how quickly the Federal Reserve cut interest rates. Rising 6.5% year-on-year, as strong demand for vehicles continued despite rising borrowing costs. Non-commercial retailers, which include e-commerce businesses, saw the strongest year-on-year growth at 9.8%. Demonstrating the continued dominance of online shopping during the holiday season.
Economic Resilience amid-Price Pressures
Stronger-than-expected November sales highlight continued economic resilience as consumers remain willing to spend, especially during the holiday shopping period. The positive data comes as the Fed prepares to release its latest economic outlook summary and policy statement. Investors are keeping a close eye on signals related to interest rates and the Fed’s outlook for the US economy, with recent data suggesting that economic strength may delay aggressive cuts in Interest rates.
The Fed’s strong retail sales figures may provide additional reason to maintain its cautious stance, with inflationary pressures continuing to be taken into account.
What is the market’s near-term outlook?
November’s strong retail sales report reinforces broadly bullish sentiment for the U.S. economy, as consumer spending remains a pillar of growth. Sales of non-store retailers and motor vehicles are likely to continue to drive gains in December as holiday spending peaks.
However, a moderate rise of 0.2% excluding cars and gas suggests that consumers remain selective in spending outside the key categories. Traders should keep an eye on how the Fed’s statements affect market expectations of a rate cut, as longer interest rate hikes could curb consumer momentum in early 2025. Currently, strong spending trends point to a supportive environment for retail-focused stocks and consumer-related sectors.
U.S. Core Retail Sales monthly: An Overview
U.S. retail sales on a monthly basis (m/m) is a key economic indicator that measures the change in the total value of U.S. retail-level sales from month to month. Here are the main aspects to understand about this indicator:
Overview
Definition: Retail sales on a monthly basis represents the percentage change in sales across different retail segments, comparing the current month with the previous month. It provides insights into consumer spending trends.
Data source: Data is published monthly by the U.S. Census Bureau, usually in the middle of the month for the previous month’s performance.
Importance
Economic Index: Retail sales are an important component of consumer spending, which drives a large part of the U.S. economy. Changes in retail sales could signal shifts in consumer confidence and economic health.
Impact on GDP: Analysts use retail sales figures to calculate gross domestic product (GDP). Making these figures essential for understanding economic growth.
Market Reactions
Financial Markets: Retail sales data can significantly impact financial markets. Strong sales figures typically lead to positive market sentiment, while weak numbers can cause lower stock prices and shifts in bond yields.
Currency Impact: The USD may rise or weaken based on retail sales performance, affecting forex trading.
Analysis and trends
Monthly volatility: Retail sales can be volatile from month to month due to seasonal factors, holidays, and economic events. Analysts often look for trends over several months to accurately measure consumer behavior.
Consumer confidence: A higher retail sales figure generally indicates higher consumer confidence.
Retail sales in US dollars on a monthly basis are a critical indicator of economic activity and consumer behavior in the United States. They provide valuable insights for economists, policymakers. Investors and analysts in understanding the health of the economy and predicting future trends.
