WASHINGTON- US retail sales rose more than expected in December, boosted by an increase in motor vehicle and online purchases, keeping the economy on solid ground heading into the new year.
The upbeat report from the Commerce Department on Wednesday, which prompted economists to upgrade their economic growth estimates for the fourth quarter, cast further doubt on financial market expectations that the Federal Reserve would start cutting interest rates in March.
It followed news earlier this month of strong employment and wage gains in December as well as a pickup in consumer prices. Fed Governor Christopher Waller on Tuesday described the economy as “doing well,” which he said was giving the US central bank “the flexibility to move carefully and methodically” on monetary policy.
“The economy is still flying high enough and economists can take down those recession forecasts this year,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “For Fed officials, the economy is not too hot and not too cold, but it is just right perhaps for a few interest rate cuts in 2024.”
Retail sales rose 0.6 percent last month after an unrevised 0.3 percent gain in November, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast retail sales would gain 0.4 percent . Retail sales are mostly goods and are not adjusted for inflation. Sales increased 5.6 percent on a year-on-year basis in December.
Sales were likely partially boosted by difficulties adjusting the data for seasonal fluctuations following distortions during the COVID-19 pandemic. In the last couple of years, consumers started their holiday shopping early to avoid empty shelves.
“We recommend averaging the December and January retail sales data, or averaging over the November to February period, to get a more reliable read on the state of the consumer,” said Aditya Bhave, senior US economist at Bank of America Securities in New York.
Nonetheless, households have maintained a healthy pace of spending, thanks to the labor market’s resilience. Retailers also have offered discounts to lure holiday shoppers.
Online sales advanced 1.5 percent . Shopping has moved to online vendors and away from the traditional brick-and-mortar retailers, a trend that accelerated during the pandemic. Receipts at motor vehicles and parts dealers accelerated 1.1 percent as more stock became available after strikes ended in the fall.
Sales at building material and garden equipment outlets rose 0.4 percent . Receipts at sporting goods, hobby, musical instrument and book stores gained 0.3 percent . Clothing store sales jumped 1.5 percent .
Sales at food services and drinking places, the only services component in the report, were unchanged. That could be a potential red flag as economists view dining out as a key indicator of household finances. The unchanged reading, however, followed a 1.7 percent surge in November. December was also a very wet month, which could have lowered traffic to restaurants and bars.
Sales at electronics and appliance outlets fell as did those at furniture stores, likely the result of discounting. Gasoline station receipts dropped 1.3 percent as gasoline prices declined.
Financial markets pared back the odds of a Fed rate cut in March to roughly 53 percent from about 65 percent late on Tuesday, according to CME Group’s FedWatch Tool.
Stocks on Wall Street were trading lower. The dollar rose against a basket of currencies. US Treasury prices fell.
Though low-income households are believed to have exhausted excess savings accumulated during the pandemic and debt levels are rising, economists expect consumer spending to hold up this year as long as the labor market does not weaken considerably.
