Retail Sales Report Shows Consumer Spending Remains Strong

Consumers returned to stores in November after a sluggish October, according to a new government report on retail sales.

The Census Bureau on Wednesday said that U.S. retail sales in November came in at $735.9 billion, a 0.6% increase from October’s sluggish levels. Economists surveyed by The Wall Street Journal and Dow Jones Newswires expected a more modest increase of 0.4%. The delivery of the report was delayed owing to the government shutdown in the fall.

Strong Start to Holiday Shopping Season

“Coming in slightly ahead of expectations, November retail sales point to ongoing consumer resilience,” wrote Brett Kenwell, eToro U.S. investment analyst. “November’s results give some hope that consumer spending remained upbeat into year-end—a constructive signal for retailers heading into the critical holiday period.”

The report showed improving sales of sporting goods, building materials and cars, while sales at miscellaneous store retailers—which includes used merchandise sellers—also moved notably higher in November. The report also showed a healthy increase in sales at restaurants and bars, a discretionary category that can provide insight into the consumers’ appetite for spending.

Wells Fargo economists noted that the report showed a 0.4% rise in the control group, which strips out sales of cars, gasoline, building materials and other products where sales are volatile or influenced by factors other than consumer spending. The economists said that the November numbers indicate that holiday season sales “are tracking toward the top end” of their year-over-year growth target range of 3.5%-4%.

“The upshot is a still-resilient consumer coming into the homestretch with plenty of momentum,” wrote Wells Fargo economists Tim Quinlan and Shannon Grein. 

Spending Strong Despite Job Market Weakness

Economists watch retail sales closely because consumer spending makes up more than two-thirds of U.S. economic activity. November’s sales bump came even as worries over a weakening labor market have grown. 

“Despite lackluster employment growth and diminished dynamism in the labor market, the unemployment rate remains low, and continued wealth gains from higher equity prices fuels spending by upper middle- income and upper income households,” wrote Nationwide Chief Economist Kathy Bostjancic. 

The strong sales data is likely to provide another wrinkle for Federal Reserve officials, who will meet later this month to decide whether to cut interest rates again.

What the Data Mean for Fed Rate Decision

While recent inflation data suggests price pressures are cooling, BMO Chief U.S. economist Scott Anderson said the sales data could make it more difficult for officials to cut rates.

The Fed’s policy committee has cut interest rates in each of its last three meetings, but officials have been divided over whether to continue cutting, even as President Donald Trump has pressed for steeper interest rate cuts.

Market participants are pricing in only a 5% likelihood that the Fed will cut its benchmark rate at the next meeting on Jan. 28, according to the CME FedWatch tool, which calculates the odds of rate adjustments based on fed fund futures trading data.

“Today’s retail sales numbers bolster the narrative of economic resilience and will help cement market expectations for a pause in Fed rate cuts at the upcoming January FOMC meeting,” Anderson wrote.