Retail Sales Rise More Than Expected in November

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. retail sales increased more than expected in November amid an acceleration in motor vehicle and online purchases, reflecting strong underlying momentum in the economy as the year concludes.

The report from the Commerce Department released on Tuesday did not affect expectations that the Federal Reserve would cut interest rates for the third time since the onset of its easing cycle in September.

Fed officials were set to begin a two-day policy meeting on Tuesday. Strong domestic demand signals, combined with improving inflation rates in recent months, suggest that the Fed might pause rate cuts in January.

Policies proposed by President-elect Donald Trump's administration, including tariffs on imports and mass deportations, are seen complicating decisions for the central bank.

Christopher Rupkey, chief economist at FWDBONDS, noted, "The market is still discounting a 25-basis-points rate cut tomorrow. However, if consumers continue purchasing interest-sensitive goods, one has to question why a central bank would risk exacerbating economic growth with a pro-growth agenda incoming in January."

Retail sales surged by 0.7% last month after an upward revision of a 0.5% increase in October, according to the Census Bureau. Economists surveyed by Reuters had anticipated a rise of 0.5% after a previously reported 0.4% increase in October, with estimates ranging from a 0.1% dip to a 1.0% gain.

In year-over-year comparisons, retail sales climbed 3.8% in November.

The resilient labor market, characterized by historically low layoffs and strong wage growth, underpins consumer spending and sustains the economic expansion.

Strong household balance sheets, boosted by record stock prices and high home values, are also fueling spending, with household savings remaining supportive.

The Fed's benchmark overnight interest rate currently stands between 4.50% and 4.75%, after a total increase of 5.25 percentage points from March 2022 to July 2023.

Late Thanksgiving Holiday

The robust rise in retail sales occurred despite a late Thanksgiving holiday, which pushed Cyber Monday into December, leading to a strong start to the holiday-shopping season. This happened amid less favorable seasonal factors used by the government when adjusting for seasonal fluctuations.

Sales at auto dealerships jumped by 2.6%, likely due to residents replacing vehicles damaged by Hurricanes Helene and Milton. Online retail sales rose by 1.8%.

Additionally, sales at building materials and garden equipment stores increased by 0.4%, likely due to rebuilding efforts in areas impacted by the hurricanes. Sales at sporting goods, hobby, musical instrument, and book stores climbed by 0.9%.

There were also solid gains in sales at electronics and appliance stores as well as furniture retailers.

However, food services and drinking places, the only services component in the report, experienced a decline of 0.4% after an increase of 0.9% in October. Dining out is seen as a key indicator of household finances.

Clothing store sales decreased by 0.2%, and grocery store sales also fell by 0.2%. Miscellaneous retailers saw a drop of 3.5%, extending the previous month's decline. Sales at service stations increased by 0.1%.

Retail sales, excluding automobiles, gasoline, building materials, and food services, rose by 0.4% last month after an unrevised drop of 0.1% in October. These core retail sales align closely with the consumer spending component of gross domestic product.

Economists estimate that consumer spending is running at approximately a 3.0% annualized rate in the fourth quarter, following a 3.5% growth in the third quarter, which accounted for much of the economy's 2.8% expansion during that time. The Atlanta Fed is forecasting a GDP increase of 3.3% in the fourth quarter.