US Economy Ends 2024 on a High Note
As the year drew to a close, the US economy showed signs of resilience, with retail sales data for December exceeding expectations. Despite concerns over the Federal Reserve’s interest rate policy, the numbers suggest a solid pace of growth.
Retail Sales Beat Estimates
The control group, which excludes volatile categories and factors into the gross domestic product (GDP) reading, saw a 0.7% increase, surpassing economists’ estimates of 0.4% sales growth. While headline retail sales rose 0.4%, slightly below expectations, the revised November figures showed a stronger 0.8% increase.
Strong Holiday Shopping Season
A 4.3% surge in sales for miscellaneous store retailers led the gains, while a 2% drop in building material sales was the largest decline. Notably, building material sales are not included in the control group. According to Wells Fargo senior economist Tim Quinlan, “This year’s holiday shopping season was even stronger than last year’s, as a resilient labor market has continued to support household income growth.”
Labor Market Strength Supports Consumer Spending
The December jobs report, released last Friday, showed the US labor market ending 2024 on a stronger footing than anticipated. This has led investors to believe the Fed may not cut interest rates as quickly as initially thought. As a result, the outlook for retail sales in 2025 remains healthy, with households likely to continue spending as long as they remain employed and earning income.
FedWatch: Interest Rate Cuts on Hold
As of Thursday morning, investors were pricing in a less than 50% chance of the Fed cutting interest rates until at least the June meeting. Nationwide chief economist Kathy Bostjancic noted that “the strength in consumer spending and the labor market, elevated inflation readings, and the prospect of changes in tariff and immigration policy boosting inflation” support the view that the Fed will move to the sidelines in the first half of the year.
GDP Growth Estimate Revised Upward
Capital Economics chief North America economist Paul Ashworth revised his fourth-quarter GDP growth estimate to 2.9%, up from 2.7%, citing the strong retail sales report. This upward revision suggests the US economy is ending 2024 on a solid note, despite ongoing uncertainty over the Fed’s interest rate policy.
Leave a Reply