Strong Consumer Spending Comes as Late Christmas Surprise

January 17, 2024

Consumers were more willing than expected to spend this holiday season, with shoppers picking up the pace in December and closing out 2023 with strong retail sales, according to the Commerce Department.

Retail sales figures, which include in-store, online, and restaurant spending, jumped 0.6% for the month, much better than the 0.4% increase that economists polled by Dow Jones had been anticipating. The larger-than-expected gain comes on the heels of November’s healthy 0.3% increase.

Heading into the holiday season, analysts were downbeat about whether consumers could continue spending at higher levels, but solid wage gains and cooling inflation bolstered consumer purchasing power.

On an annual basis, retail sales in December were up 5.6%. That is just shy of the 5.8% annual gain seen in December 2022. While retail sales data is not adjusted for inflation, the year’s gains far outpaced inflation, which rose 3.4% in December from a year earlier, a sharp slowdown from the prior year, according to the Labor Department.

Holiday spending across November and December reached a record high of $964.4 billion, not adjusting for inflation, according to the National Retail Federation (NRF). The trade organization’s calculations are based on the government’s retail data, but excludes sales at auto dealers, gasoline stations, and restaurants.

Spending over the holiday season grew nearly 4% in 2023, according to the NRF. That is a slower pace than in the past 3 years but is in line with pre-pandemic trends.

The report comes amid speculation about how much strength the U.S. economy possesses heading into the new year, as growth is expected to slow. However, a resilient consumer could signal more momentum and possibly complicate the Federal Reserve’s plans about how to proceed on interest rates.

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