The holiday shopping season got off to a fast start amid deep discounting, and U.S. retail sales surprisingly increased in November. This is likely to keep the economy on a moderate growth path this quarter and allay fears of a recession.

With a robust labour market supporting consumer resilience, the Commerce Department’s report on retail sales resurgence raised doubts about financial markets’ expectations for a rate drop as early as March of next year.

In addition to keeping interest rates unchanged on Wednesday, the Federal Reserve hinted in fresh economic forecasts that the historic monetary policy tightening that has been implemented over the past two years is coming to an end and that lower borrowing costs will be returning in 2024.

“The resilience of the consumer provides credibility to the Fed achieving a soft landing, but should also be a signal to markets that the Fed is not likely to cut rates as quickly and as much as the markets now have priced in,” said Kathy Bostjancic, chief economist at Nationwide. “The stronger economic activity remains, the slower inflation declines, and the slower the Fed responds with rate cuts.”

Following a 0.2% decline in October, retail sales rose 0.3% last month, according to the Census Bureau of the Commerce Department. Retail sales were expected by Reuters polled economists to decline by 0.1%. The majority of retail sales are products, and they are not inflation-adjusted.

In November, sales climbed 4.1% over the previous year. The pace is still enough to prevent a recession, even though it has slowed as families adjust to increasing borrowing costs and prices.

In an effort to draw customers ahead of the holiday shopping season, retailers have been providing steep discounts, and decreasing petrol prices have also freed up funds for other uses.

Sales increased last month in practically every category. Online retail sales increased by 1.0% in October after declining by 0.3% in October, indicating that consumers are progressively turning away from physical stores and towards online merchants.

Motor vehicle and parts dealers had a 0.5% increase in revenue. Sales of furniture stores increased 0.9%. Sales at hobby, sporting goods, music instrument, and book stores increased by 1.3%. Sales at clothes stores increased by 0.6%.

Sales at dining and drinking establishments increased by 1.6%. Economists believe that eating out is a significant sign of family financial health. However, 1.1% less was sold in electronics and appliance stores, most likely as a result of discounts. This week’s consumer inflation data revealed falling appliance costs in November.

Sales at stores selling garden equipment and building materials decreased by 0.4%. The U.S. Energy Information Administration reports that from the end of October through the last week of November, petrol prices dropped by more than 20 cents a gallon, which caused petrol station receipts to plummet by 2.9%.

Excluding service stations, sales increased by 0.6%.

“The death of the consumer, as well as the economy, has been greatly exaggerated and the much-hyped recession of 2023 isn’t going to materialize,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina. “The resilient consumer continues to propel corporate profits and the market higher.”

Wall Street stocks were rising in value. In relation to a currency basket, the dollar declined. Treasury bond prices increased.

Retail sales rose 0.4% last month when autos, fuel, building supplies and food services were excluded. The GDP component representing consumer spending most closely matches the so-called core retail sales figure. Core sales for October were revised down from the previously reported 0.2% growth to remain constant.

Thanks to the drop in goods prices last month, economists indicated that growth in inflation-adjusted consumer expenditure this quarter was looking rather strong.

Since many Americans travelled abroad to spend Thanksgiving with family, it’s also possible that spending on services surged in November.

After expanding at a 3.6% annualised rate in the July-September quarter, economists now predict that fourth-quarter consumer spending might rise by as high as 2.75% annualised rate, up from earlier predictions of roughly 2.0%.

Spending’s boost to GDP could be slightly mitigated by the drag that considerably slower inventory accumulation is expected to cause. In October, business inventories decreased by 0.1%, marking the first loss since June, following a 0.2% increase in September, according to a separate Census Bureau report.

Goldman Sachs economists revised up their forecast for GDP growth in the fourth quarter, from 1.4% to 1.5%. In the third quarter, the economy expanded at a 5.2% annual pace.

The labour market, which is still creating jobs, continues to be the foundation of the economy.

Initial claims for state unemployment benefits decreased by 19,000 to a seasonally adjusted 202,000 for the week ending December 9, according to a third Labour Department report.

The steady increase in the number of people on unemployment registers was dismissed by economists. According to the claims report, during the week ending December 2, the number of people getting benefits following an initial week of aid—a proxy for hiring—rose by 20,000 to 1.876 million.

After a spike in benefit applications early in the COVID-19 epidemic, the so-called ongoing claims have generally climbed since mid-September. This increase has been attributed to challenges compensating for seasonal variations.

“The stable trend in initial claims is a more accurate reflection of current labor market conditions than the inflated increases in the continuing claims series since the summer,” said Lou Crandall, chief economist at Wrightson ICAP in New York.

(Source:www.reuters.com)

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