American shoppers spent strongly this holiday season, a sign consumers can drive economic growth in 2024.
U.S. retail sales rose a seasonally adjusted 0.6% in December from a month earlier, the Commerce Department said Wednesday. The larger-than-expected gain came after a healthy 0.3% increase in November.
“Holiday shopping beat even the usually too-optimistic estimates of retailers,” said Robert Frick, corporate economist with Navy Federal Credit Union. “A few months ago it looked doubtful consumers could continue spending at these levels” but rising wages and cooling inflation are “bolstering purchasing power.”
From a year earlier, retail sales rose 5.6% in December. That nearly matched December 2022, when sales rose 5.8% from a year earlier, and well outpaced inflation. The consumer-price index rose 3.4% in December from a year earlier, a sharp slowdown from the prior year, according to the Labor Department.
Moderating spending growth and cooler price gains are consistent with an economy achieving a soft landing, where inflation is tamed without a recession.
Record holiday spending
Americans spent more on vehicles, clothing, at department stores, and online in the year’s final month.
Holiday sales during November and December reached a record $964.4 billion, not adjusting for inflation, the National Retail Federation said Wednesday. The group’s calculation is based on the government’s retail data but excludes sales at auto dealers, gasoline stations and restaurants.
Spending during the holiday period increased nearly 4% in 2023, a slower pace than in the previous three years but in line with prepandemic trends, NRF said. Most retail categories posted gains this past holiday season, except for furniture and home-improvement stores. Those big-ticket purchases that require financing are generally more sensitive to higher borrowing costs.
Apparel makers Lululemon and Abercrombie & Fitch raised their financial targets on stronger-than-expected late-year sales. American Eagle Outfitters said this month that fourth quarter-to-date revenue, through Dec. 30, was up about 8%.
“I am incredibly pleased with the momentum we are seeing across brands, which has continued into early January,” said Jay Schottenstein, chief executive of American Eagle Outfitters. “Looking ahead to 2024, we remain confident in our ability to deliver healthy earnings growth.”
U.S. shoppers spent a record $222.1 billion online between November and December, up 4.9% from a year earlier, according to data from Adobe Analytics. The increase in spending was driven by discounts and use of “buy now pay later” shopping options, Adobe said.
But some companies saw less robust sales.
Nike cut its revenue outlook for the year as concerns mounted that consumers globally might adjust their spending. Outside of shopping events such as Black Friday, Nike was grappling with softened demand while it also experienced weaker traffic to its digital platforms and competition from those offering more discounts, Chief Financial Officer Matt Friend told analysts on a conference call last month.
Steph Davies, owner of The Waxwing, an online gift shop selling handmade goods, said the shopping season started later for the holidays, and orders were smaller than usual. “It was definitely a reserved holiday season,” said Davies, who lives in Milwaukee.
Strong spending to persist
Wednesday’s spending numbers keep the Federal Reserve on track to hold short-term interest rates steady at its next meeting, Jan. 30-31, and contemplate cutting them later this year. Officials anticipated at least three rate cuts this year at their December meeting.
Resilient consumer spending, supported by a still-solid labor market and rising wages, “should tamp down on the expectation of a March rate cut,” said Kathy Bostjancic, chief economist for Nationwide Mutual. She expects “this strong consumer spending will persist at least through the first quarter.”
According to a recent survey of economists by The Wall Street Journal, the economy is estimated to have grown 2.6% in 2023, largely thanks to robust consumer spending, defying earlier expectations of a recession last year.
Household spending, which makes up about two-thirds of the U.S. economy, is expected to help drive growth this year, too.
“Delta carried more travelers this holiday season than any other time in our history,” Ed Bastian, chief executive of Delta Air Lines, said last week. Spending is continuing to shift from goods to services, and Delta’s customers are in a healthy financial position, with travel remaining a priority, he said. He also expects corporate travel to improve this year.
The economic expansion, however, is forecast to slow to a 1% rate in 2024, according to the WSJ survey, because the labor market is expected to moderate and consumers and businesses will feel the lingering effects of higher interest rates.
In December, shoppers benefited from wages that grew at the strongest pace in half a year. They also felt better about their economic situation and the path of inflation, according to consumer sentiment readings.
Price drops in a number of categories associated with gift giving were another positive for consumers in December. Although overall inflation heated up in December, the prices of products, including appliances, footwear, sporting goods and toys, declined from the prior month.
The retail sales data is adjusted for seasonality to allow for month-to-month comparisons, but not for inflation. The retail report mainly captures spending on goods sold at stores and online rather than most services such as housing, utilities and medical care. The Commerce Department will release a more complete spending report at the end of the month.
Write to Harriet Torry at harriet.torry@wsj.com and Natasha Khan at natasha.khan@wsj.com
