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A surprisingly strong holiday sales season had retailers scrambling to hire in December to meet the demand. Retailers had delayed some of their usual hiring in November in anticipation of a softer holiday season but had to reverse course in December when sales proved stronger than expected. In all, sales excluding autos, gasoline and restaurants rose 3.9% in November and December, nearly as much as the 4.2% rise in 2023, when inflation was higher. Excluding building materials stores, in-store sales posted a strong 2.8% gain, compared with a 2.3% rise in 2023. The strongest sales gains in December were seen in furniture, clothing, sporting goods and hobbies, and miscellaneous stores. Miscellaneous stores recovered all of their November sales drop.
Ecommerce had another solid gain with a 9.6% rise in November-December, a bit weaker than the 13.6% increase in 2023. Ecommerce now accounts for 27% of “core” retail sales.
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Motor vehicle sales managed to maintain their sky-high level with a 0.7% gain in December, following large jumps in October-November. Part of the earlier strength was the need to replace hurricane-damaged vehicles in the Southeast, but hitting this sales level in December was impressive.
Restaurant sales declined 0.3%, their first decrease in nine months, but this was from a high level after strong growth earlier in the year.
Consumer spending on services excluding restaurants rose a modest 0.3% in November, the slowest growth in 15 months. (November is the latest month for which data are available.) Spending on services had been pretty consistent, with 0.5% increases in six of the previous seven months. Monthly dips are not unusual, and we expect the moderate increases to continue unless there are major changes in disposable income growth. That seems unlikely, given that disposable income has been growing at better than 5% annually since late 2022.
All in all, the recent holiday sales season indicates that consumers are not pulling back yet, which bodes well for retail spending going into 2025. But uncertainties abound. A new administration with new policies is taking office. The Federal Reserve could stop cutting interest rates. And a gradually cooling labor market could cause consumers to think about boosting their savings. The savings rate is running at a meager 4.4% currently, as consumers continue to spend freely. However, don’t expect any sudden pickup in saving and accompanying decline in spending. That only occurs when unemployment rises sharply and consumers start worrying about losing their jobs. But savings rates have been lower than the historical norm and may begin to rise slowly, which would cut into the cash available to support future retail spending. Still-high interest rates on consumer loans will likely continue to dampen lower-income households’ spending power, too.
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