American consumers ended the year on a spending spree, buying everything from furniture to clothing and dining out, according to the latest government snapshot.
The figures released on Thursday marked a clear sign that consumers are still able and willing to shop, and while shoppers are focused on bargains, the data bodes well for 2025.
Retail sales rose 0.4% in December from a month earlier, the Commerce Department said, though that was down from an upwardly revised 0.8% gain in November.
The numbers show that even as many Americans struggle with high prices and high interest rates, low unemployment and rising wages are encouraging millions of consumers to spend and fueling economic growth. Last Friday, the government reported that employers increased hiring in December and the unemployment rate fell to 4.1%.
Last month’s sales growth was below economists’ forecasts, “but it was actually a strong report,” said Paul Ashworth, chief North American economist at Capital Economics. The sales figure was held down by a sharp decline in building materials stores and a small decline in restaurants. Otherwise, most retailers reported solid earnings.
Ashworth now expects the economy to expand at a healthy annual rate of 2.9% in the final three months of last year, up from a previous estimate of 2.7%.
Retailers generally reported healthy sales during the winter holiday shopping season. Most of the increase in spending last month was due to a 0.7% increase in car sales and a 2.3% increase in furniture purchases. Sales in sporting goods stores increased by 2.6%, and in clothing stores by 1.5%.
The report was not adjusted for inflation, which rose last month. The retail sales report mainly reflects sales of goods for which prices have been relatively reduced. December sales rose 3.9% from a year ago, while commodity prices rose just 0.3%.
Separately, the National Retail Federation, the nation’s largest retail trade group, said holiday sales in November and December rose a better-than-expected 4% from a year earlier as low inflation spurred shoppers to buy holiday goods.
After falling sharply in 2023, inflation has remained at around 2.7% in recent months and prices are still much higher than four years ago. Still, the Labor Department said on Wednesday that core prices, excluding the volatile food and energy categories, rose more slowly last month as clothing prices barely rose and housing rents rose at a slower pace.
Cooler core inflation figures have renewed hopes among economists and Wall Street investors that the Federal Reserve will cut its key interest rate further this year, after three cuts last year by one percentage point to around 4.3%.
The retail sales report came as thousands of retail executives gathered in New York this week for the National Retail Federation’s annual conference to discuss issues ranging from customer wariness to the specter of tariffs.
The conference followed a solid holiday shopping season, though consumers remain ambivalent. Wealthier buyers, buoyed by rising home values and equity investments, continue to spend more, but lower-income buyers, whose wallets are still squeezed by high inflation, have pulled back. And many buyers are more sensitive to deals, which analysts believe will continue into 2025.
“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 renovating and buying. Families at the lower end of the spectrum are a little more constrained and are struggling more in this high-cost environment.”
Given the difficult environment, the winners and losers were clear. Research and data firm Coresight Research tabulated 7,327 store closings last year, up nearly 58% from 2023. It also tracked 48 retail bankruptcies in the U.S. last year, including auto dealerships, up from 25 the year before.
Crafts and fabric chain Joann’s filed for Chapter 11 bankruptcy protection for the second time this year and is now looking for a buyer. The chain operates 800 stores across the country.
Analysts will study retailers’ earnings reports next month to get a more complete picture of shoppers’ mindsets. But a few retailers are already offering some clues.
Cartier owner Richemont reported strong sales for the holiday quarter on Thursday. Target, which has struggled with sluggish business for the season, also delivered some positive news. It raised its forecast for comparable sales in the fourth quarter after reporting better-than-expected business for November and December. It referred to strong performers such as toys and clothing.
But earlier this week, Signet Jewelers Ltd., which operates both Macy’s Inc. and chains such as Zales and Kay Jewelers, reported disappointing holiday sales.
Retailers are also trying to figure out how to prepare for Trump’s proposed tariffs. Walmart and Best Buy executives have already warned that they may have to pass on the higher costs to shoppers.
Macy’s Inc. CEO Tony Spring said at the NRF conference that back in 2016 and 2017, when Trump threatened to impose tariffs, the company diversified its store-label brand supply and worked with manufacturing partners. He added that the retailer is having the same conversations again.
“We want to be able to be a good trading partner with the rest of the world. At the same time, we want to have a fair relationship.”
