WASHINGTON (Reuters) – U.S. retail sales increased solidly in December, pointing to strong demand in the economy and further reinforcing the Federal Reserve’s cautious approach to cutting interest rates this year.
Retail sales rose 0.4% last month after an upwardly revised 0.8% gain in November, the Commerce Department’s Census Bureau said on Thursday.
Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.6% after a previously reported 0.7% rise in October.
The report followed news last week of a surge in nonfarm payrolls and drop in the unemployment rate to 4.1% from 4.2% in November. Though underlying inflation slowed in December, overall consumer prices increased by the most in nine months.
The U.S. central bank has forecast only two rate cuts this year, down from the four it had projected in September, when it launched its policy easing cycle. That was in acknowledgement of the potential risks from President-elect Donald Trump’s plans for broad tariffs, mass deportations of undocumented immigrants and tax cuts, which economists have warned are inflationary.
Labor market resilience is driving spending through solid wage growth. Household balance sheets are also in good shape, though lower-income consumers are struggling.
The Fed is not expected to cut rates this month. Its benchmark overnight interest rate has been reduced by 100 basis points to the 4.25%-4.50% range, having been hiked by 5.25 percentage points in 2022 and 2023.
Retail sales excluding automobiles, gasoline, building materials and food services surged 0.7% last month after an unrevised 0.4% gain in November. These so-called core retail sales, correspond most closely with the consumer spending component of gross domestic product.
The Atlanta Fed is currently forecasting GDP increasing at a 2.7% annualized rate in the fourth quarter.
The economy grew at a 3.1% pace in the July-September quarter, well above the 1.8% pace that Fed officials regard as the non-inflationary growth rate.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
