Retail sales continued to grow robustly in December, marking the fourth consecutive month of strong performance. Total sales increased by 0.4% in December, following a 0.8% gain in November (revised up from 0.7%). Auto sales contributed to December’s growth, though to a lesser extent than in previous months. Excluding autos, sales also rose by 0.4%, an improvement from the 0.2% growth recorded in November.
Key growth drivers included miscellaneous store retailers, which saw a sharp rebound after recent volatility, along with (furniture stores), sporting goods and hobby stores, apparel stores, and gas stations. However, some segments experienced declines, notably building supply stores, which are often affected by winter weather, along with smaller dips in drug stores and restaurants.
Year-Over-Year Trends
- December’s retail sales grew 3.9% compared to the previous year, slightly below the upwardly revised 4.1% growth in November.
- Core sales (excluding gas stations and auto dealers) rose 3% year-over-year in Q4. When further excluding building supply stores and restaurants, core sales growth reached 4.2%. While these figures represent the weakest (holiday season) gains since 2019, they remain strong by pre-pandemic standards.
Segment Performance
- Standout growth segments included:
- Miscellaneous store retailers: +4% (recovering from a 3.9% drop in November)
- Furniture stores, sporting goods, apparel stores, and gas stations: Gains of 1.5% or more
- Declines were concentrated in:
- Building supply stores: -2.0%
- Drug stores and restaurants: Modest decreases
Growth in October and November was revised up by 0.1 percentage point, signaling slightly stronger momentum in late 2024 than initially reported.
Behind the Numbers Retail sales have shown strong momentum in the second half of the year, despite several challenges:
- Falling goods prices on a year-over-year basis have softened the dollar value of reported sales, even as service prices continue to rise.
- High interest rates have discouraged borrowing for big-ticket items, while tightened lending standards further constrained purchasing power.
- Slowing wage growth, as the labor market begins to loosen, has also tempered spending.
Despite these headwinds, consumer spending remains supported by:
- Healthy job growth and low unemployment
- Real wages bolstered by falling inflation
- Rising household wealth and (stock market gains), which have contributed to reduced saving rates compared to pre-pandemic norms
Risks and Opportunities Looking ahead, the outlook for retail sales growth remains modest but stable. Key risks include:
- A potential surge in energy prices, which could erode disposable income and consumer confidence
- Higher-than-expected tariffs that could drive up retail prices and reduce spending
- Persistently high inflation prompting prolonged high interest rates, further curbing sales
On the upside, factors such as supply-side surprises, continued job and wage growth, and easing inflation could bolster retail performance. The Federal Reserve’s potential rate cuts may also spur delayed big-ticket purchases.
Overall, while growth is expected to moderate, strong fundamentals in the labor market and household wealth provide a solid foundation for continued consumer spending.
