Retail Sales Increase Unexpectedly
U.S. retail sales saw an unexpected increase in November, signaling a strong start to the holiday shopping season. This surge, along with deep discounting, relieved concerns about a looming recession and suggested that the economy will continue to grow steadily this quarter. The Commerce Department reported a 0.3% rise in retail sales last month, following a 0.2% drop in October. Economists had predicted a slight decrease of 0.1%. Despite higher borrowing costs and prices, the 4.1% year-on-year increase in sales remains sufficient to stave off a recession.
Consumer Resilience and Rate Cut Expectations
The rebound in retail sales demonstrated the resilience of consumers, thanks to a robust labor market. This unexpected rise also cast doubts on financial markets’ expectations for an early rate cut, as indicated in the new economic projections by the Federal Reserve. These projections suggest that the Federal Reserve will not cut rates as quickly or extensively as previously anticipated. Kathy Bostjancic, chief economist at Nationwide, stated that the strong economic activity supports a “soft landing” and should serve as a signal to the markets of the Fed’s cautious approach.
Retail Sales Breakdown
The increase in retail sales last month was primarily driven by online sales, which rebounded by 1.0% after a 0.3% decline in October. Additionally, sales at sporting goods, hobby, musical instrument, and book stores surged by 1.3%. Clothing store sales also saw a notable increase of 0.6%. However, sales at electronics and appliance outlets declined by 1.1%, likely due to discounting. Sales at building material and garden equipment outlets slipped by 0.4%. Gasoline station receipts experienced a significant decline of 2.9%, largely influenced by a drop in gasoline prices of over 20 cents per gallon.
Positive Outlook for Consumer Spending
Economists believe that growth in inflation-adjusted consumer spending this quarter is shaping up to be decent, primarily due to the decline in goods prices in November. Spending on services is also expected to have increased, with many Americans traveling to spend time with family during the Thanksgiving holiday. As a result, economists now project that consumer spending in the fourth quarter could grow by as much as a 2.75% annualized rate. This is higher than earlier estimates of around 2.0%, following a 3.6% growth rate in the previous quarter.
Business Inventories and GDP Growth
The Census Bureau’s separate report revealed a 0.1% dip in business inventories in October, the first decline since June. This occurred after a 0.2% increase in September. Economists at Goldman Sachs raised their fourth-quarter GDP growth estimate to a rate of 1.5%, up from the previous estimate of 1.4%. The economy accelerated at a rate of 5.2% in the third quarter, with growth supported by a strong labor market.
In summary, the unexpected rise in U.S. retail sales in November, driven by deep discounting and online sales, suggests a positive outlook for consumer spending. This surge has alleviated fears of a potential recession and supported a moderate growth path for the economy this quarter. Additionally, the strong labor market has bolstered consumer resilience, which in turn has cast doubts on markets’ expectations for an early rate cut. Economists predict that fourth-quarter consumer spending could exceed earlier estimates, thanks to a decline in goods prices and an increase in spending on services.