United States: Retail Sales Ended the Year on a Positive Note

December’s total retail sales growth came in slightly below expectations, but there is little cause for concern. Although total monthly sales growth was the lowest since August, a 0.4% gain is significant. Take out motor vehicle sales and this month’s print is the best we’ve seen since September and a fairly decent end to 2024.

Motor vehicles aside, there was increased appetite for durable goods during the holiday season. Furniture sales posted their biggest gain since January 2024. Meanwhile sales of electronics and appliances rose for the third month in a row in December, a first since Q1 2022. Interest rate cuts last fall seem to have helped drive spending on durable goods. That said, lacklustre sales at building materials stores meant that it wasn’t all good news.

Nonstore retailers had their weakest December since 2021, with sales edging up just 0.2% following a 1.7% jump in November. Some seasonal online discounts were likely available as early as November or even October, which factored into this underperformance.

Monthly sales at food services and drinking places fell in December for the first time since March. After stellar performance in this segment between July and October, some weakness was to be expected in the last two months of the year. Real sales at restaurants decreased in November and December once consumer price increases are factored in.

Data adjusted for price inflation suggests that real spending on goods remained fairly strong in the fourth quarter. Total real consumption rose by an annualized 3.7% in the third quarter, and we’re expecting a gain of nearly 3% for the last quarter of the year.

Retail sales slowed somewhat in 2024 after several very strong years. Higher average interest rates throughout the year, storms in late summer and fall, and uncertainty fuelled by the electoral environment didn’t help consumers. Only clothing stores and miscellaneous store retailers performed better in 2024 than 2023.

We may be in for an even more challenging year in 2025. The positive impact on consumer confidence after Donald Trump was elected has already largely subsided. Some indexes are also pointing to renewed inflation fears, likely fuelled by threats of increased tariffs. If the new administration implements tariffs quickly, households may have to tighten their belts due to higher prices.

Although December’s retail sales growth came in slightly below expectations, it certainly won’t set any alarm bells ringing. Spending on goods should still make a decent contribution to fourth-quarter real GDP. This month’s print also doesn’t suggest an economic slowdown, which could have led the Federal Reserve to cut its key interest rates again. For now, we expect the Fed to hold rates steady at its January 29 decision.