US Retail Sales Rose Modestly Last Month Amid Solid Holiday Shopping, Boosting Economy

By Associated Press

Published 3 months ago on

January 16, 2025

December retail sales show resilient consumer spending, boosting economic growth despite ongoing challenges. (AP File)

Retail sales rose 0.4% in December, driven by car sales and furniture purchases, boosting economic growth.
Low unemployment and rising wages encourage consumer spending despite higher prices and interest rates.
Retailers report solid holiday sales, but face challenges with store closures and bankruptcies in the sector.

Americans stepped up their spending at retail stores and restaurants last month in a clear sign that consumers are still able and willing to shop.

Retail sales rose 0.4% in December from the previous month, the Commerce Department said Thursday, though down from November’s upwardly revised 0.8% gain.

Low Unemployment and Rising Wages Encourage Spending

The figures suggest that even as many Americans are struggling with higher prices and elevated interest rates, a low unemployment rate and rising wages are encouraging millions of consumers to spend, bolstering economic growth. Last Friday the government reported that employers stepped up hiring in December and the unemployment rate fell to a low 4.1%.

Last month’s sales growth was below economists’ projections, “but this was actually a strong report,” said Paul Ashworth, chief North American economist at Capital Economics. The sales figure was held down by a sharp drop at building materials stores and a small decline at restaurants. Otherwise, most types of retailers reported solid gains.

Ashworth now expects the economy expanded at a healthy annual rate of 2.9% in the final three months of last year, up from his previous estimate of 2.7%.

Holiday Shopping Season Boosts Sales

Retailers have generally reported healthy sales during the winter holiday shopping season. Much of last month’s increase in spending was driven by a 0.7% jump in car sales, and a 2.3% spike in purchases of furniture. Sales at sporting goods stores jumped 2.6%, while clothing outlets reported a 1.5% increase.

The report isn’t adjusted for inflation, which picked up last month. The retail sales report mostly reflects sales of goods, where prices have been relatively muted. Sales rose 3.9% in December compared with a year ago, the government said, while goods prices have risen just 0.3%.

After dropping precipitously in 2023, inflation has been stuck at about 2.7% in recent months, and prices are still much higher than four years ago. Still, on Wednesday the Labor Department said that core prices — excluding the volatile food and energy categories — rose more slowly last month, as clothing prices barely increases and apartment rental costs climbed at a slower pace.

Federal Reserve Rate Cuts on the Horizon

The cooler core inflation figures renewed hopes among economists and Wall Street investors that the Federal Reserve will cut its key rate further this year, after three reductions last year reduced by a percentage point to about 4.3%.

The retail sales report came out as thousands of retail executives gathered for the National Retail Federation’s annual conference this week in New York to discuss issues ranging from continued shopper caution to artificial intelligence to the specter of tariffs.

The conference came on the heels of a solid holiday shopping season, though consumers remain bifurcated. Wealthier shoppers, boosted by rising home values and stock investments, continue to spend more, but lower-income shoppers, their wallets strained by still high inflation, have pulled back. And many shoppers have been more sensitive to deals, which analysts believe will continue in 2025.

“Families at the higher end of the income spectrum are doing more than their fair share of consumer spending and remodeling,” Greg Daco, chief economist at EY-Parthenon, Ernst & Young LLP said Monday. “Maybe they’re not moving, but they’re remodeling and they’re buying. Families at the lower end of the spectrum are a little bit more constrained and have more difficulties with this high price environment.”

Retail Landscape: Winners and Losers

Given a challenging environment, there have been clear winners and losers. Research and data firm Coresight Research tabulated 7,327 store closures last year, nearly 58% more than in 2023. And it also tracked 48 retail bankruptcies, including automobile dealers, in the U.S. last year, up from 25 in the previous year.

On Wednesday, craft and fabric chain Joann filed for Chapter 11 bankruptcy protection for the second time within the year, and now it’s looking for a buyer. The chain operates 800 stores nationwide.

Analysts will be dissecting retail earnings reports next month to get a fuller picture of shoppers’ mindset. But a handful of retailers are already offering some clues. Signet Jewelers Ltd., which operates such chains as Zales and Kay Jewelers, cut its fourth-quarter sales outlook after reporting disappointing holiday business as shoppers gravitated toward lower prices.

Meanwhile, Target, which struggled with sluggish business heading into the season, offered some positive news Thursday. It raised its outlook for comparable sales in the fourth quarter, after reporting better-than-expected business for the November and December period. Comparable sales measure business from established digital and store channels.

Retailers are also trying to figure out how to prepare for Trump’s proposed tariffs. Walmart and Best Buy executives have already warned that they may have to pass on higher costs to shoppers.

Tony Spring, CEO of Macy’s Inc., said at the NRF conference that back in 2016 and 2017 when Trump threatened to impose tariffs, the company diversified sourcing of its store label brand and worked with its partners about production. He added that the retailer is having the same conversations again.

“We want to be able to be a good trading partner with the rest of the world,” he said. “At the same time, we want it to be a fair relationship.”