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Motor vehicles and ecommerce accounted for almost all of the 0.7% November gain in retail sales. Vehicle sales are showing unusual strength for this time of year, with a 1.8% gain in October and a 2.6% jump in November. Part of this strength could be the need to replace hurricane-damaged vehicles in the Southeast, but even if sales tick down in the next few months, they should increase in general next year.
The strength in ecommerce sales was also impressive since Cyber Monday and Cyber Week sales got pushed into December this year because of the late Thanksgiving. This indicates that consumers are not pulling back yet, which bodes well for retail spending going into 2025.
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Excluding vehicles and gasoline, “core” sales rose 0.4% on the strength of ecommerce. In-store sales declined 0.2% but still remained on track for a 2% increase over last year’s holiday season. Restaurants also saw a drop of 0.4% in sales, but this was after four previous months of solid increases. One concern was a 3.5% drop in sales at miscellaneous stores, but the last time a large drop in this category happened, in May, sales bounced back to their previous level the next month, so that may happen again.
Consumer spending on services excluding restaurants rose a moderate 0.5% in October, the latest month for which data are available. Spending on services has been pretty consistent, with 0.5% increases in six of the past seven months. We expect that these moderate increases will continue unless there are any major changes in disposable income growth. That seems unlikely, given that disposable income has been growing at better than 5% annually since late 2022.
A gradually cooling labor market could cause consumers to think about boosting their savings rate above the current 4.4%. However, don’t expect any sudden pickup in saving. That only occurs when unemployment rises sharply and consumers start worrying about losing their jobs. But saving 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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