WASHINGTON (Reuters) – Retail sales in the United States showed a solid increase in December, indicating robust demand within the economy. This further reinforces the Federal Reserve’s cautious stance on reducing interest rates in the coming year.
The latest data from the Commerce Department’s Census Bureau revealed a 0.4% rise in retail sales last month, following a revised 0.8% increase in November. Economists surveyed by Reuters had anticipated a 0.6% growth in retail sales for December, after a previously reported 0.7% uptick in October. These figures exclude adjustments for inflation and mainly comprise goods.
This report comes on the heels of recent positive economic indicators, including a notable increase in nonfarm payrolls and a decrease in the unemployment rate from 4.2% in November to 4.1% in December. While there was a slowdown in underlying inflation during December, overall consumer prices experienced their most significant increase in nine months.
The Federal Reserve had initially projected four rate cuts for the year but has since revised this forecast to only two, in response to potential risks associated with President-elect Donald Trump’s policy proposals. These risks include broad tariffs, mass deportations of undocumented immigrants, and tax cuts, all of which economists have warned could fuel inflation.
Strong wage growth and a resilient labor market continue to drive consumer spending, aided by healthy household balance sheets. However, lower-income consumers are facing challenges.
The Fed is not expected to implement rate cuts in the current month. The benchmark overnight interest rate currently stands in the range of 4.25%-4.50%, having undergone a reduction of 100 basis points. This adjustment follows a series of rate hikes totaling 5.25 percentage points between 2022 and 2023.
Retail sales excluding automobiles, gasoline, building materials, and food services saw a notable 0.7% surge last month, following an unrevised 0.4% increase in November. These core retail sales closely mirror the consumer spending element of the gross domestic product (GDP) calculation.
The Atlanta Federal Reserve Bank is currently forecasting a 2.7% annualized growth rate for the GDP in the fourth quarter. In the preceding July-September period, the economy expanded at a 3.1% pace, considerably surpassing the 1.8% growth rate that Fed officials consider non-inflationary.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
