The US economy closed out 2024 with robust growth, as December retail sales figures exceeded expectations, raising questions about the Federal Reserve’s timeline for potential interest rate cuts. This strong economic performance suggests a resilient consumer base and raises the possibility of a more cautious approach from the Fed.
The control group within the retail sales report, a key indicator used to calculate GDP, jumped 0.7% in December, surpassing the 0.4% growth forecasted by economists. This significant increase suggests a healthy level of consumer spending and overall economic momentum.
Overall retail sales for December saw a 0.4% rise, slightly below the anticipated 0.6% but still indicative of positive growth. November’s retail sales figures were revised upward to 0.8%, further reinforcing the narrative of a strong finish to the year. Sales excluding auto and gas showed a 0.3% increase, marginally below the 0.4% consensus estimate.
Capital Economics Chief North America Economist Paul Ashworth noted the report’s strength, revising their Q4 GDP growth estimate upward to 2.9% from 2.7%. This upward revision underscores the significant impact of consumer spending on overall economic growth.
A notable 4.3% surge in sales for miscellaneous store retailers led the gains, offsetting a 2% decline in building material sales, which are excluded from the control group calculation. This disparity highlights the importance of considering various sectors when assessing overall economic health.
Wells Fargo Senior Economist Tim Quinlan attributed the robust holiday shopping season to the resilient labor market supporting household income growth. Continued employment and income generation are likely to sustain consumer spending, positioning retail sales for a healthy start to 2025.
This positive retail sales data contrasts with recent employment figures, which revealed a stronger-than-expected labor market in December. This strength may cause the Federal Reserve to reconsider the pace of potential interest rate cuts. Current market expectations suggest a less than 50% probability of a rate cut before the June Fed meeting, according to the CME FedWatch Tool.
Nationwide Chief Economist Kathy Bostjancic highlighted the confluence of strong consumer spending, a robust labor market, and persistent inflation as factors supporting a more cautious approach from the Fed, potentially delaying rate cuts until the latter half of the year. These combined factors suggest a complex economic landscape that requires careful consideration by policymakers.
In conclusion, the December retail sales report paints a picture of a resilient US economy heading into 2025. However, this strength raises important questions about the Federal Reserve’s next moves regarding interest rates. The interplay between economic growth, inflation, and monetary policy will continue to be a focal point for investors and economists alike in the coming months.
