Much of the last month’s growth in retail trade was due to a sizeable increase in sales of vehicles and parts, which rose by 2.6% m/m. Sales at gasoline stations edged up just 0.1%, weighed down by lower prices at the pump. Sales at the building materials and equipment stores increased for the sixth consecutive month (+0.4%).

Sales in the “control group”, which excludes the volatile components above (i.e., gasoline, autos and building supplies) and is used in the estimate of personal consumption expenditures (PCE), rose 0.3% m/m, an acceleration relative to 0.1% gain in October.

Sales at non-store retailers increased by 1.8% and were up 9.7% on a year-over-year basis, making it the fastest growing category. Online sales continue to increase as a share of total sales, reaching 20% in November. In contrast, sales growth was soft at the general merchandize stores (-0.1%), with weakness concentrated in department store sales (-0.6%).

Food services & drinking places – the only services category in the retail sales report – declined by 0.4%. October’s data was revised up to 0.9% (previously 0.7%).

Key Implications

U.S. consumers are finishing 2024 in strong financial shape. A rally in equity markets and gains in home prices have bolstered household wealth. While job growth has slowed, the labor market remains healthy and continues to generate jobs. Consumer confidence has also improved, especially following Trump’s election victory, with the prospect of lower taxes lifting households’ spirits. For this quarter, we expect inflation-adjusted consumer spending to increase by 3% (annualized), a small step down from 3.5% in Q3 but still strong growth.

Inflation, however, remains an issue. Nominal retail sales are up 3.8% from the year ago but the picture looks less upbeat after adjusting for inflation, with sales up just 1%. The latest uptick in inflation reaffirmed that progress in bringing inflation lower is stalling, and the coming year could bring more inflationary surprises, due to potential tax cuts, tariffs, and changes in immigration policy. These factors would likely prompt the Fed proceeding more cautiously next year, leading to higher interest rates for consumers than otherwise would be the case. Along with a slowing labor market, these are some of the reasons why we expect consumer spending to moderate to a trend-like pace of 2% next year (forecast).