Americans End Year With a Splurge, Pushing Retail Sales Up by 0.6%

Americans continued to spend heavily as 2023 came to an end, driving retail sales higher by 0.6% in December, fueled by online purchases and spending at bars and restaurants, the Census Bureau reported on Wednesday.

Economists had forecast an increase of 0.4% after November’s 0.3% gain.

For all of 2023, sales were up 3.2%.

Excluding auto sales and gasoline that tend to be volatile month to month, sales rose by 0.6% as well compared to forecasts of a 0.2% increase.

“Strong increase of 0.6% with the control group that feeds into the estimate of GDP up a robust 0.8%. Ex-autos and gas up 0.6% and ex autos 0.4%. All above expectations as those that doubt the resilience of the American household keep losing,” RSM US Principal and Chief Economist Joseph Brusuelas posted on social media.

Consumer spending accounts for two-thirds of the U.S. economy and defied expectations at the beginning of last year. After avoiding a recession, the economy is forecast to have grown at a 2.6% rate last year, but economists expect that to slow this year.

A strong labor market and robust wage growth allowed consumers to take on more credit and use buy now, pay later programs to maintain their spending. Outstanding credit card spending debt surpassed $1 trillion in the third quarter, although debt-to-income levels were below 10% and modest compared to the early 2000s.

Still, the spending spree on goods ignited by the COVID-19 pandemic has ebbed, and consumers are now prioritizing spending on services and experiences like travel and attending sporting events and concerts.

As a result, some categories are seeing heavy discounts, such as electronics, while incentives are back in fashion at auto dealer lots.

A new survey of executives at mid-market retail and consumer packaged goods companies by investment bank Carl Marks Advisors found that nearly 90% expect their sales to remain the same or increase in 2024.

Retailers are focused on improving their supply chains and increasing the use of automation.

“With inflation abating and interest rates leveling off, 2024 presents an exciting opportunity for retailers with the courage to embrace out-of-the-box thinking and innovation,” said Howard Meitiner, managing director at Carl Marks. “Retailers who are prepared to re-evaluate their business model and take the necessary steps to invest in integrated omnichannel experiences should be optimistic about the coming year. Following record lows in unemployment and a strong holiday season for retailers now is not the time to be pessimistic.”

While the 2024 economic outlook is more conservative as the sharp rise in interest rates to fight inflation makes credit more expensive and economic stimulus from the pandemic no longer is a factor in the economy, some economists have raised their forecasts for growth this year in recent days while cutting the odds of a recession.

Behind the shift is a belief that declining inflation and a cut in interest rates will help the economy grow modestly as the year unfolds. On Wednesday, the Mortgage Bankers Association said that demand for mortgages jumped 10% from the prior week as rates on the benchmark 30-year fixed rate loan fell to 6.75%.

“While consumers have drawn down savings, real disposable income is up and supporting spending,” said Sam Bullard, managing director and senior economist at Wells Fargo’s corporate and investment banking group. “Moreover, the Fed rate hikes are likely behind us with the next move expected to be a cut.”