Retail sales in the United States edged higher in December, signaling that consumers remain willing and able to spend despite enduring economic pressures. According to a report released by the Commerce Department on Thursday, sales at stores, restaurants, and other retail establishments rose by 0.4% from November, a slight slowdown from the previous month’s revised 0.8% gain.
Spending Strong Amid Economic Headwinds
This uptick in consumer activity comes as Americans continue to grapple with higher prices and elevated interest rates, challenges that have squeezed household budgets in recent years. Yet, a low unemployment rate—now at 4.1%, its lowest in years—and rising wages have fueled spending.
The labor market’s resilience underpins this economic buoyancy. Last Friday, the Labor Department reported a robust increase in hiring during December, reinforcing the ability of many Americans to weather financial pressures and maintain spending levels.
Boost from Cars, Furniture, and Sporting Goods
The December increase was fueled by gains across several categories, led by a 0.7% rise in car sales and a 2.3% surge in furniture purchases. Sporting goods stores also saw an impressive 2.6% jump, while clothing retailers reported a 1.5% increase.
While these figures paint a picture of resilience, it’s important to note that the report does not account for inflation, which has remained stubbornly elevated. Prices of goods—a significant component of retail sales—have risen by only 0.3% over the past year, keeping the reported gains in perspective.
Overall, retail sales climbed 3.9% year-over-year in December, outpacing inflation, which has hovered at 2.7% in recent months after a steep decline in 2023.
Inflation and Interest Rates: Mixed Signals
The inflationary pressures driving up prices for essentials such as housing and food have disproportionately impacted lower-income households, while wealthier families have continued to spend. Encouragingly, core inflation, which excludes volatile food and energy prices, showed signs of cooling last month. Apartment rental costs rose more slowly, and clothing prices barely ticked up, providing hope that inflationary pressures might ease further.
This cooling inflation has renewed optimism among economists and investors that the Federal Reserve could reduce its benchmark interest rate this year, following three cuts in 2024 that brought the rate to approximately 4.3%.
A Divided Consumer Landscape
These developments come as thousands of retail executives gathered in New York this week for the National Retail Federation’s annual conference, where industry leaders discussed challenges ranging from evolving consumer behavior to technological innovations like artificial intelligence.
The retail sector remains deeply bifurcated. Higher-income consumers, buoyed by rising home values and strong stock portfolios, continue to spend heavily on discretionary items and home improvements. By contrast, lower-income households are more constrained, pulling back on spending as inflation erodes their purchasing power.
“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 Sector Outlook
Retailers have weathered a solid holiday shopping season, but lingering uncertainties cloud the road ahead. The specter of tariffs, economic bifurcation, and consumer caution will likely define the retail landscape in 2025. For now, though, the resilience of American consumers continues to provide a critical engine for economic growth.
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