Holiday shopping turned out even better than expected in December as shoppers picked up the pace to finish a strong 2023, the Commerce Department reported Wednesday.
Retail sales rose 0.6% this month, boosted by a rebound in clothing and accessories stores and online non-store shopping. The results were better than the Dow Jones estimate of 0.4%.
Excluding cars, sales rose 0.4%, also higher than the estimate of 0.2%.
The report comes amid speculation about how much strength the US economy had heading into the new year, when growth is expected to slow. However, a resilient consumer could signal more momentum and potentially give the Federal Reserve some caution on how to proceed with interest rates.
Stock market futures remained negative after the release.
“The Fed has already been hammering home its 'no rush to cut rates' message, and today's stronger-than-expected retail sales will give them no reason to change their tune,” said Chris Larkin, director of trading and investing. for Morgan Stanley's E-Trade.
On an annual basis, retail sales increased by 5.6% in 2023. The figures are not adjusted for inflation, so sales show that consumers are more than keeping pace with an annual inflation rate of 3.4%, as measured by the consumer price index. The CPI rose 0.3% in December, also lower than the increase in retail sales.
Another measure of the strength of retail sales, which excludes sales from car dealers, building materials stores, gas stations, office suppliers, mobile homes and tobacconists, rose 0.8% this month. The Department of Commerce uses this so-called control group when calculating gross domestic product.
The report showed that sales were generally strong this month, although there were some weaknesses. Clothing and accessory stores as well as online retailers saw an increase of 1.5% this month.
“Consumers are eschewing brick-and-mortar stores in favor of online shopping,” said Jeffrey Roach, chief economist at LPL Financial. “The behavioral change that took place during the pandemic is likely to continue and successful retailers will adapt to this new model.”
Sales at healthcare and personal care stores fell 1.4% and fuel prices at gas stations fell 1.3%. Turnover at furniture and home furnishing stores also fell by 1%.
On a year-over-year basis, food services and beverage services posted the biggest gains, rising 11.1%, although sales were flat in December. Healthcare, personal care and electronics and appliances saw increases of 10.7%. Gasoline stations fell by 6.6%.
In other economic news Wednesday, import prices were unchanged in December, despite Wall Street's estimate of a 0.5% decline and following a 0.5% decline the month before. However, export prices fell by 0.9%, as in November.
The reports show that markets are concerned about the direction of the Fed's policy. Current market prices assume the central bank will cut rates by six quarters of a percentage point in 2024, twice what Fed officials indicated in December. Stronger-than-expected economic growth and inflation could force the Fed to keep policy more restrictive.
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