American consumers ended the year on a strong note, with sales at retail stores, restaurants and online continuing to show significant gains in December.
Total retail sales increased by 0.4%, following an upward revision to 0.8% from 0.7% in November, according to Commerce Department data released on Thursday.
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While a portion of the overall gains, expressed in dollar terms, was influenced by higher inflation over the past month, spending volumes remained robust.
Most important, the control group, which feeds into calculations of gross domestic product, exceeded estimates, rising by 0.7% for the month. This increase lifted the group’s three-month annualized average to 5.4%, only slightly lower than the 5.9% recorded in the third quarter.
After adjusting for inflation, overall retail sales in the fourth quarter should remain strong enough to keep the spending component of GDP at a high level.
We are now even more confident in our forecast for a 2.6% increase in total GDP for the last quarter of 2024.
Looking ahead, there are some reasons for caution. Seasonal factors may come into play, along with a potential spending hangover, which has occurred early in the year in the post-pandemic period.
That said, absent the potential impact of higher tariffs, we believe American consumers should remain on solid footing as their overall income continues to provide strong support for further spending.
The story would, however, be more complicated if significantly higher tariffs are put in place.
Underneath the top-line retail sales figures, 10 out of 13 categories posted gains in December. Sporting goods, furniture, clothing and gasoline stations had the biggest gains. Meanwhile, spending at restaurants and drinking places dropped by 0.3%, while building material stores dropped by 2%.
