December 2024 retail sales were positive but slightly below expectations, with an increase in month-on-month sales by 0.4%. This was the fourth consecutive monthly expansion in retail sales and December 2024 retail sales were up 3.9% year on year. While the pace of retail sales in December was only modestly positive, the health of recent retail sales data bodes well for the growth rate in Q4 2024 GDP. Looking ahead, retail sales are likely to benefit from economic tailwinds provided by continued job growth, record high wages, and relatively low consumer and household debt delinquencies.
December Retail Sales Report Reflects Ongoing Growth
The December retail sales report was modestly positive and supportive of ongoing economic growth.
December 2024 retail sales rose by 0.4%, reflecting a fourth consecutive monthly expansion. The pace of retail sales excluding motor vehicle and parts sales was also up by 0.4% in December. Both of these retail figures reflected modest monthly expansions, although they were slightly below expectations.
With only positive retail sales growth in Q4 2024, this trend bodes well for a positive Q4 2024 Advance GDP report, which will be released on January 30.
Retail Sales Dynamics Over The Past Twelve Months
December 2024 retail sales were up 3.9% year on year, according to the U.S. Census Bureau. This solid pace of retail expansion supported economic growth over the past year and was fueled by continued payroll gains, record high wages, and relatively low consumer and household debt delinquencies.
In an analysis of retail sales growth, it is common to evaluate retail sales excluding motor vehicles and parts. In December 2024, retail sales excluding motor vehicles and parts were up by a more modest 2.9% year on year.
Meanwhile, motor vehicle and parts dealers had very strong sales over the past 12 months, with a year-on-year rise of 8.4%—the highest year-on-year retail sales increase in any category except for its own subcategory of auto and other motor vehicle dealers, which were up 8.8% year on year.
Other big retail sales winners of the past 12 months were nonstore retailers, which reported a year-on-year sales increase of 6% December. Nonstore retailers include e-commerce sales, which has been persistently trending higher and hit a new all-time record high level of over $300 billion in Q3 2024.
Prestige Economics expects e-commerce retail sales will continue to grow in 2025, and that the percent of retail sales attributable to e-commerce retailers will also rise on trend from the near-record 16.2% in Q3 2024.
Overall, retail sales have been positive over the past 12 months across the vast majority of retail sales categories.
Only a few categories of retail sales were down year on year in December 2024, including gasoline station sales (down 1.2%), building material and garden equipment and supplies dealers (down 1.8%), and department store sales (down 1.8%).
Retail Sales And Consumption Outlook For 2025
Retail sales depend on the health of consumers, which is why with a solid labor market and rising wages, U.S. consumption has been solid over the past year. The retail and consumption outlooks are also likely to remain positive in 2025. Recent spending data have been positive, while consumer credit data show that consumers and households are in relatively good shape.
Solid spending from deleveraged consumers supported growth in 2024, and it also bodes well for 2025.
The New York Fed’s Q3 2024 report for U.S. Household Debt and Credit showed a record level of U.S. consumer debt at $17.94 trillion. However, the report also reflected low debt delinquencies at only 3.5% of total consumer debt. Prior to Q3 2020, 3.5% of consumer debt delinquent would have been the all-time record low.
The aggregate U.S. consumer debt-to-income ratio was at a relatively low 82% in Q3 2024. Prior to the COVID-19 pandemic, this would have been the lowest debt-to-income ratio since 2002.
The U.S. is also in a particularly strong position for mortgage debt. Since Q1 2020, almost 68% of mortgage origination dollars have been issued to people with 760-plus FICO scores—the highest bracket of credit scores. The mortgage data is especially revealing because it reveals that those individuals with the highest credit quality in history borrowed at some of the lowest interest rates in history.
Coupled with low debt delinquencies and a solid job market, the story of strong consumption seems poised to continue.
Retail Implications For Growth Trends And The Outlook For 2025
U.S. real gross domestic product growth likely accelerated in 2024 compared to 2023, according to forecasts from the International Monetary Fund. Plus, for 2024, the U.S. GDP growth rate is likely to post the fastest growth rate of any advanced economy for a second consecutive year, according to Prestige Economics.
Looking to 2025, the U.S. GDP outlook is still positive, although the growth rate is poised to slow.
Recent U.S. growth data support a positive outlook, since real GDP accelerated in Q3 2024 to an upwardly revised 3.1%, which followed a strong 3.0% growth rate in Q2 2024. In the near term, the outlook is positive and the latest Atlanta Fed GDPNow data indicates that Q4 2024 GDP is likely to be 2.7%, based on data available through January 9.
Around 69% of Q3 2024 GDP was consumption, which is why record-high nonfarm payrolls, high numbers of open jobs, and low consumer debt delinquencies supported growth in 2024—and why they bode well for the U.S. growth outlook in 2025.
Future Retail Sales, Growth, And The Fed
With positive December retail sales following a strong jobs report and elevated CPI inflation, the Fed is unlikely to cut rates this month or in March 2025. However, a 0.25% rate cut in May or June 2025 seems likely, given the potential slowing in year-on-year consumer inflation in Q2 2025 due to base effects. Moreover, if there is no rate cut by May, a 0.25% Fed rate cut in June would be highly likely.
What do you think of the December retail sales report and the future prospects for U.S. consumption and growth?
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