December Retail Sales: The Winners and Losers of the Holiday Season

U.S. retail sales for December 2024 rose 0.4% month-over-month, falling short of the 0.6% consensus estimate but maintaining positive momentum in consumer spending. Year-over-year, sales increased 3.9%, while total retail and food services sales for 2024 grew 3.0%, reflecting a steady, though not spectacular, holiday shopping season. While inflation concerns and interest rate pressures lingered, the figures suggest underlying consumer demand remains intact, bolstered by a strong labor market and moderate wage growth.

Key Winners and Losers of the Holiday Shopping Season

Furniture and home furnishings emerged as the strongest performing category, with sales climbing 2.3% month-over-month and a notable 8.4% year-over-year increase. Retailers such as Williams-Sonoma, RH, and La-Z-Boy are likely beneficiaries of this trend, as consumers appeared willing to invest in big-ticket items. Motor vehicle and parts dealers also posted solid gains, with sales up 0.7% month-over-month and 8.4% year-over-year, underscoring strong demand in the auto sector.

In contrast, home improvement retailers faced headwinds, with building materials and garden equipment sales declining 2.0% month-over-month and 4.2% year-over-year. This could signal caution for Home Depot and Lowe’s heading into 2025. Additionally, the restaurant category underperformed, with food services and drinking places sales dipping 0.3% in December, reflecting consumer sensitivity to elevated menu prices. E-commerce growth slowed notably, with nonstore retailers posting just a 0.2% monthly increase and a 6.0% annual gain—markedly weaker than typical holiday season growth, raising questions about momentum for players like Amazon and Etsy.

Consumer Spending Signals and Broader Economic Implications

Despite mixed category performance, the December retail sales report underscores the resilience of consumer spending, a critical driver of U.S. economic growth. Core retail sales—excluding automobiles, gasoline, building materials, and food services—rose 0.7% month-over-month, exceeding expectations and closely aligning with GDP growth drivers. Economists now estimate Q4 2024 consumer spending grew at an annualized rate of 3.3%, reflecting steady momentum following a 3.7% pace in Q3.

However, underlying inflation remains a key concern, with the recent surge in gas prices contributing to a 1.5% increase in gasoline station receipts. While wage growth and a robust labor market supported spending, higher costs for necessities could weigh on discretionary spending in 2025. Analysts also noted muted inventory-to-sales ratios, suggesting businesses are cautiously managing stock levels amid uncertain demand.

Potential Federal Reserve Implications

The retail sales data, coupled with recent signs of easing inflation, reinforces expectations of a cautious Federal Reserve in the coming months. While Fed Governor Christopher Waller highlighted the possibility of rate cuts later in 2025 if inflation continues to decline, the strength in consumer spending suggests no immediate urgency for monetary stimulus. The Fed is widely expected to hold its benchmark rate steady at its next meeting, with markets currently pricing in two rate cuts for the year.

The mixed retail sales report aligns with broader economic signals of a two-speed consumer environment. Higher-income households continue to drive big-ticket purchases, while lower-income consumers remain more sensitive to inflation and economic uncertainty. The performance of discretionary categories such as furniture and sporting goods suggests a measure of resilience, but weaker segments like dining and home improvement point to challenges for sectors reliant on broad-based consumer confidence.

Market and Sector Read-Through

The retail sales report provides important insights for both equity and fixed income markets. Bond yields fell slightly in response to the data, reflecting subdued inflationary pressures and potential support for a dovish Fed stance. In equity markets, retail-focused sectors will likely see mixed reactions. Positive signals for furniture and automotive retailers contrast with cautionary signs for e-commerce and home improvement players.

Looking ahead, the report sets the stage for upcoming earnings seasons in retail and consumer discretionary sectors. Investors will closely watch companies like Amazon, Williams-Sonoma, and Home Depot to assess how retailers are navigating the evolving economic landscape. Meanwhile, the Fed’s path forward will remain data-dependent, with consumer spending a critical variable in shaping 2025 monetary policy decisions.