December 2024 retail sales figures painted a picture of moderate growth, offering a positive but measured outlook for the US economy. A 0.4% month-on-month increase, while slightly below expectations, marked the fourth consecutive month of expansion, culminating in a 3.9% year-on-year surge. This consistent growth in retail sales suggests a healthy consumer base and contributes positively to the anticipated Q4 2024 GDP growth. Underlying factors such as robust job growth, record-high wages, and relatively low consumer debt delinquency rates provide a strong foundation for continued retail sector expansion. While the December figures were modest, the overall trend suggests continued momentum heading into 2025.
A deeper dive into the December retail sales data reveals nuanced trends within various sectors. Excluding motor vehicles and parts, retail sales also grew by 0.4% month-on-month and 2.9% year-on-year. The automotive sector, however, experienced significant growth, with an 8.4% year-on-year increase in sales, highlighting a strong demand for vehicles. Another standout performer was the non-store retail sector, which encompasses e-commerce sales. This sector saw a 6% year-on-year increase, driven by the ever-growing popularity of online shopping, which reached record highs in Q3 2024. While most retail categories experienced positive growth, a few sectors, notably gasoline stations, building materials, and department stores, saw year-on-year declines. This divergence suggests sector-specific factors at play.
The positive momentum in retail sales throughout 2024 can be attributed to the overall health of the consumer. A strong labor market, coupled with rising wages, has fueled consumer spending and supported economic growth. Looking ahead to 2025, the outlook for both retail and consumption remains positive, albeit with an anticipated moderation in growth. Despite a record-high consumer debt of $17.94 trillion in Q3 2024, low delinquency rates of 3.5% and a manageable debt-to-income ratio of 82% signal a financially sound consumer base. This financial stability, combined with the continued strength of the labor market, sets the stage for continued consumer spending and economic expansion in 2025.
Furthermore, the US housing market plays a critical role in the consumer spending narrative. The preponderance of mortgage originations going to borrowers with high credit scores indicates a lower risk of defaults and further strengthens the foundation for sustained consumer confidence. This responsible lending environment, coupled with historically low interest rates, has created a favorable backdrop for homeowners, contributing to their financial stability and willingness to spend. The confluence of these factors—strong employment, healthy consumer finances, and a robust housing market—suggests that the positive consumption trends witnessed in 2024 are likely to persist into 2025.
The overall picture painted by the economic data is one of continued growth, albeit at a potentially slower pace. The International Monetary Fund forecasts an acceleration in US real GDP growth in 2024 compared to 2023, with the US potentially leading advanced economies in growth for the second year in a row. While growth is expected to moderate in 2025, the outlook remains positive, supported by the robust Q3 2024 GDP growth of 3.1% and the projected Q4 growth of 2.7%. Consumption, which accounts for roughly 69% of GDP, continues to be the primary driver of this growth, fueled by record-high employment, abundant job opportunities, and low consumer debt delinquencies.
The positive economic indicators, including the consistent retail sales growth and the robust labor market, have implications for the Federal Reserve’s monetary policy. Given the continued strength of the economy and the potential for persistent inflation, the likelihood of a near-term rate cut is diminished. While cuts in January or March 2025 seem unlikely, the possibility of a 0.25% rate cut in May or June remains on the table, particularly if inflation begins to moderate due to base effects. The Federal Reserve will continue to monitor economic data, including retail sales, inflation, and employment figures, to inform its monetary policy decisions. The interplay between these factors will shape the economic landscape in 2025 and influence the pace of growth in the coming year.
