American shoppers ended the year with a heightened appetite for spending, purchasing a wide variety of goods ranging from furniture to apparel and dining out at restaurants, according to the latest data released by the government.
The figures, disclosed on Thursday, indicate that consumers continue to exhibit both the ability and the willingness to shop, which is promising for economic prospects in 2025, even though many remain focused on finding deals.
Retail sales experienced a 0.4% increase in December compared to the prior month, as reported by the Commerce Department, although this growth was a decrease from November’s revised 0.8% rise.
These numbers suggest that despite the ongoing challenges posed by high prices and interest rates, a low unemployment rate and increasing wages are empowering millions of consumers to spend, thereby supporting economic growth. Last Friday, the government disclosed that hiring by employers increased in December, with the unemployment rate declining to a record low of 4.1%.
Paul Ashworth, chief North American economist at Capital Economics, commented that while last month’s sales growth did not meet economists’ expectations, the report still reflects robust activity. He noted that a significant decrease in sales at building materials stores and a slight decline in restaurant sales contributed to this outcome, but most retailers saw positive gains.
Ashworth has adjusted his estimate for economic growth in the last quarter of the year to a healthy annual rate of 2.9%, up from an earlier forecast of 2.7%. Overall, retailers reported positive sales during the winter holiday season. A substantial part of December’s spending boost can be attributed to a 0.7% rise in automobile sales and a notable 2.3% increase in furniture purchases. In sporting goods stores, sales surged by 2.6%, while clothing retailers noted a 1.5% uptick.
It is essential to mention that the retail sales report does not account for inflation, which saw a rise last month. The data primarily highlights goods sales where price increases have remained relatively controlled. In comparison to a year prior, retail sales climbed by 3.9%, while the prices of goods only increased by 0.3%.
In another report, the National Retail Federation—America’s largest retail trade organization—indicated that holiday sales in November and December experienced a stronger-than-anticipated rise of 4% compared to the previous year, driven by lower inflation on holiday items that encouraged consumer purchases.
After a dramatic decrease in 2023, inflation has stabilized around 2.7% in recent months, with prices still significantly higher than they were four years ago. According to the Labor Department, core prices (excluding volatile food and energy prices) have risen more slowly recently, with only minimal increases in clothing prices and a lesser rate of growth in rental costs for apartments.
The moderation in core inflation figures has sparked optimism among economists and investors on Wall Street regarding potential cuts to the Federal Reserve’s key interest rate this year; last year, three reductions lowered the rate to about 4.3%.
The retail sales data coincided with the gathering of numerous retail executives at the National Retail Federation’s annual conference in New York, where topics ranged from cautious consumer behavior to looming tariff issues.
Despite the positive outcomes during the holiday shopping season, consumer spending patterns remain polarized. While affluent shoppers, buoyed by rising home values and stock market gains, continue to spend freely, lower-income consumers, feeling the pinch from sustained inflation, are scaling back their expenditures. Many have become more price-sensitive, a trend that analysts predict will persist into 2025.
According to Greg Daco, chief economist at EY-Parthenon, families with higher incomes are playing a significant role in consumer spending and home renovations. He noted that while these families are not necessarily moving, they are investing in remodeling and purchasing goods, whereas those in lower income brackets are facing greater challenges in this inflationary environment.
The retail landscape continues to show pronounced variation, with certain companies thriving while others struggle. Coresight Research reported a staggering 7,327 store closures in the past year—marking a near 58% increase compared to 2023. The firm also recorded 48 retail bankruptcy filings in the U.S. last year, including automobile dealerships, up from 25 the year before.
In a notable case, Joann, a craft and fabric retailer, filed for Chapter 11 bankruptcy protection for the second time within a year, actively seeking a buyer for its 800 locations.
Next month, analysts will examine retail earnings reports closely to gauge consumer sentiment more thoroughly, though a few companies are already offering insights. Richemont, the owner of Cartier, reported strong sales for the holiday quarter, while Target, which faced sluggish business prior to the season, shared optimistic news by raising its outlook for comparable sales in the fourth quarter, citing impressive performances in toys and clothing.
In contrast, both Macy’s Inc. and Signet Jewelers Ltd., which operates brands like Zales and Kay Jewelers, reported disappointing sales figures for the holiday season.
Retail executives are also preparing for the potential return of tariffs proposed by Trump, with some, including Walmart and Best Buy, warning that consumers may face higher prices due to increased costs.
Tony Spring, CEO of Macy’s Inc., remarked at the NRF conference on how the company adapted to previous tariff threats by diversifying its sourcing and collaborating with partners on production strategies. He indicated those discussions are resurfacing as retailers look to navigate the present challenges, emphasizing the desire for equitable trading relationships globally.
