Retail sales topped forecasts in November, growing at a robust pace for the third month in a row. Sales at retail and online stores increased by 0.7%, according to the Census Bureau on Tuesday.
The data aligns with our forecast for a strong end of the year for consumers, with GDP growth expected to be 2.5% or above.
Car sales were behind the increase, yet sales also looked strong in other key components. The control group, which is a better proxy for consumption spending within the calculation of gross domestic product, increased by a solid 0.4% for the month. That was driven by online sales, which rose by 1.8% in November.
With goods inflation rising by 0.4% (and by 0.1% excluding car prices), according to the most recent consumer price index report, the sales numbers remained healthy even after adjusting for inflation.
The data aligns with our forecast for a strong end of the year for American consumers, with GDP growth expected to be 2.5% or above.
The underlying strength of American households has been rock solid this year, as significant increases in personal income, assets and equity prices have supported spending growth.
While there are always skeptics of strong spending numbers—often citing record-high credit card debt as unsustainable—we don’t believe this is the case.
Read more of RSM’s insights on the economy and middle market.
The Federal Reserve reported that the debt-to-asset ratio at the end of the third quarter was at a 50-year low, indicating that consumers remain financially resilient.
It is unclear whether consumers are buying goods, especially cars, in advance to prepare for potential price increases caused by higher tariffs.
Businesses have signaled intentions to pull forward their inventory buildups, particularly for items more exposed to rising tariffs. But we suspect it will take more time for consumers to adopt a buy-in-advance mentality. This leaves room for further spending growth.
Industrial production
In a separate report from the Federal Reserve, industrial production unexpectedly dropped in November because of disappointing declines in utilities and mining output.
Total production volume fell by 0.1%, marking the third consecutive monthly decline as the sector remained in a long downward trend since 2022.
The manufacturing subsector showed a slight rebound, rising by 0.2% for the month on the back of increased car production. But this increase was not enough to offset the significant drops in October and September, which may have been affected by two hurricanes in the South.
Looking ahead, low energy prices are likely to keep mining production subdued for some time. Additionally, an expected upward revision in the Federal Reserve’s interest rate path could continue to drag on manufacturing production as borrowing costs remain elevated.
In contrast, the possibility of higher tariffs and the long-term residual effects of previous infrastructure and industrial policies should yield significant benefits in the years ahead.
This may offset the current disappointing performance of the sector. We anticipate that domestic producers less exposed to tariffs will benefit the most from new policies over the next four years.
