More consumers, more workers, more jobs, more money. GDPNow jumps upon these retail sales.
By Wolf Richter for WOLF STREET.
Retail sales rose by 0.45% in December from November (+5.5% annualized), and November and October were revised higher – October from +0.46% to +0.56%, and November from +0.69% to +0.77% – and it’s on top of these upwardly revised sales that December sales grew by another 0.45%, all seasonally adjusted.
The slow first half was followed by a blistering acceleration in the second half, particularly over the past four months.
Not seasonally adjusted, December sales rose to a record of $794 billion. Ecommerce was a big winner; sales jumped 10.2% year-over-year to $156 billion, for a share of 19.6% of total retail sales, surpassing auto dealers and making it the #1 retailer category for the month.
The acceleration in the second half: Someone turned on the spigot.
The three-month average – which includes the prior revisions, irons out the month-to-month squiggles, and shows the trend better – rose by 0.59% in December, seasonally adjusted, after three-month average growth rates of +0.74% in November, +0.45% in October, and +0.66% in September.
To get a point of reference, on an annualized basis, December’s three-month average growth rate of 0.59% amounts to an annual rate of 7.3%. November’s growth rate of 0.74% amounts to an annual rate of 9.3%. That is huge growth for the US.
Someone turned on the spigot in the second half, and retail sales gushed, after a slow first half. June had been handicapped by the CDK hack of the cloud-based dealership software of thousands of dealers that prevented them from processing sales in June, which then got processed in July, shifting that portion of retail sales from June to July, but that doesn’t explain the surge in retail sales over the past four months of 8.2% annualized:
- 6 months January-June total: +0.1%, annual pace +0.2%.
- 6 months July-December total: +3.8%, annual pace +7.7%.
- 4 months September-December total: +2.67%, annual pace +8.2%.
Note the steepening of the slope over the past six months (black box):
GDPNow jumped to 3.0% due to these retail sales.
The Atlanta Fed’s GDPNow “nowcast” for Q4 “real” GDP (inflation adjusted) jumped to a growth rate of 3.0% today, upon inclusion of the retail sales data.
Over the past 15 years, the US has averaged about 2% “real” GDP growth. If GDPNow is on target, Q4 real GDP would come in at about 3.0%. Over the past five quarters, there was only one weakling, Q1 2024 with 1.6% inflation-adjusted growth. The other four quarters ranged from 3.0% to 4.4% inflation-adjusted growth, which is huge for the US.
Ecommerce and other “nonstore retailers” (ecommerce retailers, ecommerce operations of brick-and-mortar retailers, and stalls and markets): Total sales not seasonally adjusted jumped by 10.2% year-over-year to $156 billion (blue). Huge seasonal adjustments reduced that to $127 billion (red). The three-month average sales in December from November, seasonally adjusted, jumped by 0.62%:
More consumers, more workers, more jobs, more money.
Our Drunken Sailors, as we lovingly and facetiously have come to call them, are in the mood to spend. The labor market has been solid, with an additional 2.23 million payroll jobs created in 2024, and with hourly earnings up by 4%, outpacing inflation for the second year. Consumers are sitting on vast and ballooning piles of cash in money-market funds and CDs. Stocks, home prices, and cryptos have soared in recent years, and consumers that hold them (64% are homeowners and many hold stocks in their retirement funds) are feeling flush.
And there are a lot more consumers: net immigration added 2.8 million people to the population in the 12 months through July 2024, and 4.0 million over the prior two months, and so the population of the US over those three years soared by 2.4%, including by nearly 1% over the 12 months through July, the biggest percentage growth rate since 2001, according to the population updates by the Census Bureau in December.
Many of these new arrivals are already working, and they’re spending money too (detailed discussion here):
Amid this strong demand, inflation catches its second wind. The Fed needs to watch out.
Inflation has been accelerating for the past few months. The latest piece of that puzzle came yesterday: The Consumer Price Index rose by 0.39% (+4.8% annualized) in December from November, the sharpest increase since February 2024. It has been accelerating since the low point in June (blue).
The three-month CPI, which irons out some of the month-to-month squiggles, jumped by 3.9% annualized, the sharpest increase since April, and the fifth month-to-month acceleration in a row.
This acceleration of the month-to-month CPI inflation rate over the past four months parallels the surge in retail sales.
The year-over-year CPI rose by 2.9%, the sharpest increase since July, and the third month in a row of acceleration (detailed discussion here).
But our drunken sailors are not dropping money everywhere equally.
Sales at nonstore retailers (mostly ecommerce) and at auto and parts dealers accounted for nearly 40% of total retail sales in December.
Some of the other major categories also booked strong sales, but not all. Some of the unique pandemic booms, such as home improvements, have blown over and aren’t coming back, it seems.
New and used vehicle dealers and parts stores, the second largest category in December: Sales on a three-month average basis soared by nearly 2% (seasonally adjusted) in December from November, and by 7.5% year-over-year (not seasonally adjusted) to $141 billion. This was a very strong finish of a year that had started out somewhat slow-ish.
The spike in dollar-sales of new and used vehicles in 2021 and 2022 was caused by ridiculous price increases in used vehicles and by a combination of addendum stickers, lack of incentives, and higher MSRPs in new vehicles, amid the shortages at the time. Starting in mid-2022, used vehicle prices began to plunge, and new vehicle prices flattened out, and though unit sales increased, dollar sales flattened out.
But over the past few months, new and used vehicle prices have started rising again, which contributed to the worst month-over-month CPI inflation reading since February and the worst year-over-year inflation reading since July, as we discussed here yesterday. These price declines caused the dollar-sales for those 18 months to flatten out, despite rising retail unit-sales.
This recent rise in new and used vehicle prices and the strong volume sales created this spike in dollar sales at new and used vehicle dealers.
Food services and drinking places (#3 category, 13% of total retail), includes everything from cafeterias to restaurants and bars. After a decline in early 2024, moderate growth resumed:
- Sales: $97 billion
- From prior month, 3-month average: +0.23%
- Year-over-year: +3.2%
Food and Beverage Stores (12% of total retail). Prices per CPI for food at home exploded from 2020 to early 2023, which caused the spike in sales, then flattened out at high levels for a while, before starting to rise again:
- Sales: $85 billion
- From prior month, 3-month average: +0.30%
- Year-over-year: +2.7%
General merchandise stores, minus department stores (9% of total retail), including retailers such as Walmart, which is also the largest grocer in the US.
- Sales: $66 billion
- From prior month, 3-month average: +0.21%
- Year-over-year: +3.6%
Gas stations (7% of total retail sales). Dollar-sales at gas stations move in near-lockstep with the price of gasoline. The price of gasoline started dropping in mid-2022 and continued to wobble lower until recently. These price declines pushed down dollar-sales at gas stations. Sales at gas stations also include all the other merchandise gas stations sell.
Gasoline prices started rising again recently, and so there’s this little hook for December, a three-month average that includes the price drop in October, a small rise in November, and the bigger rise in December:
- Sales: $52 billion
- From prior month, 3-month average: +0.63%
- Year-over-year: -4.1%
Sales in billions of dollars at gas stations (red, left axis); and the CPI for gasoline (blue, right axis):
Building materials, garden supply and equipment stores (6% of total retail). The enormous remodeling boom during the pandemic fizzled in late 2022, and sales fell for a while. In 2024, sales started rising again from still very high levels, but late in 2024, they fizzled again:
- Sales: $41 billion
- From prior month, 3-month average: -1.0%
- Year-over-year: +0.8%
Health and personal care stores (5% of total retail:
- Sales: $38 billion
- From prior month, 3-month average: -0.42%
- Year-over-year: +2.3%
Clothing and accessory stores (3.7% of retail):
- Sales: $27 billion
- From prior month, 3-month average: +0.60%
- Year-over-year: +3.1%
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It’s hard to believe U.S. retail sales total less than one trillion yearly when Federal deficits are well over 2 trillion per year. What’s wrong with that picture?
And the beat goes on.
This per month! They were $795 billion in December and $8.54 trillion with a T for all of 2024.
OOOPS. Standing corrected, Sir.
“The acceleration in the second half: Someone turned on the spigot”
It’s an everything mania in all assets, concocted by the FED. Just when you think it’s topped out and the ridiculous prices and values can’t go higher, they do. Sh!Tcoins with absolutely no intrinsic value or usage other than 100% pure speculative gambling have served to reinforce said behavior with seemingly endless upside potential. You might as well be selling air.
This is a dangerous place that central bankers and politicians have put the eCONomy. There is not a single thing that is even remotely valued correctly, save for maybe some commercial real estate, but even then you really have to put on your glasses to make sure.
The bottom line is that the FED should have NEVER cut rates. They should have continued to pause, which was premature in and of itself. Now it’s back to “wait and see and may need to raise again.” That’s a piss-poor way of handling inflation and this everything mania, but alas they serve the asset holders, and nobody else.
Makes you think they want inflation. Look at the outcome and deduce the motive. Carl Jung said that I think. I mean they took so long to even acknowledge the existence of inflation when it was clear to pretty much anybody with a pulse that things were out of control. Makes me think the delay was to allow inflation to become entrenched that they could come off the lower bound. Thanks wolf for your exceptional work.
Actually it’s worse – they DID acknowledge inflation but came up with a bullsh!t “it’s transitory” narrative, scoffing at it and dismissing naysayers with impossible levels of hubris while they themselves gambled in risk assets and front ran the markets on their own insider info. Only when the egg on their faces was so deep and dripping with irrefutable evidence did they portray themselves as bold do-gooders and start raising rates aggressively, patting themselves on the back the entire way.
The tactics of “stonewalling” are quite powerful on trusting masses.
Well that correctly captures my darkest analysis of the current conundrum.
Inflated bubbles mysteriously don’t deflate. Definatly, suspicious happenings that make a mockery of the E101 indoctrination that the market is free and random.
I see the proposed Secretary of the Treasury seemed like weak tea during his testimony. Hopefully he’s not another Ben Bernanke.
You are too generous in your assessment of crypto.
Not only does it have no intrinsic value, it is incredibly wasteful in terms of energy consumption, carbon footprint, and water consumption. Recent estimates place the energy consumption of a single transaction at over 1,000 kWh, more energy than is consumed by the average US household over a month. At national average cost of energy, this is over $160 just for a single transaction.
The reckless fed is on guard 24/7 for any disturbance, without fail. Powell is high up in the tallest tree looking for any signs of smoke from a fire.
Let’s hope he loses his grip up there,
Drunken Sailor here: Living well in retirement, traveling and enjoying life. The hardest part is avoiding all of the other Drunken Sailors spending their money at Costco and Home Depot any time of the day on any given weekday. Plus, the Drunken Sailors seem to show up at every vacation spot I visit, both domestic and foreign.
Humans are an invasive species.
I agree. I once described my vision of the concentration of humans as a bee hive engulfing the earth. The universe, heaven, will not even notice that we are gone. The earth won’t either.
The resolution of that very idea may save us.
“Average wholesale prices rose at an annual rate of 2 percent from 1964 to 1968, 4 percent from 1968 to 1972, and 10 percent from 1972 to 1978.” —Arthur F. Burns, The Anguish of Central Banking, September 1979
“Viewed in the abstract, the Federal Reserve System had the power to abort the inflation at its incipient stage fifteen years ago or at a later point, and it has the power to end it today. At any time within that period, it could have restricted the money supply, and created sufficient strains in financial and industrial markets to terminate inflation with little delay. It did not do so because the Federal Reserve was itself caught up in the philosophic and political currents that were transforming American life and culture.”
— Arthur F. Burns, The Anguish of Central Banking
Circumstances are far from identical to today, and I apologize for schlepping history, but this failed bureaucrat’s view from the end of the Great Inflation is worth the read.
Brilliant comment. I have never read A Burns hapless account of his inability to make a monetary decision that was contrary to the philosophic and political currents. I’m sorry but the concept of the Fed independence, is one of those religious relics that we just know are good luck.
Grasping for certainty in a world in which certainty doesn’t exist.
John H- I appreciate the quote from Arthur Burns. The “ philosophic and political currents” were the belief that you could use Keynesian stimulation all the time, rather than just in downturns, to pay for great American projects like the Viet Nam war.
Bonds celebrated the “good” news with a nice little rally today.
Starting to sound like Groundhog Day, isn’t it…
And next week we are sailing into a drunken “new economic golden age.”
Buckle up.
I think they mean a new economic bitcoin age. Gold and bitcoin who needs dollars?
What happens if unemployment slips? Big problem.
That is why bitcoin like gold fails the currency test of being accepted as payment for a pizza at one of our many pizzerias.
Just owned 18% UST’s and foreclosed real estate in the 1980s. Think we will see it again?
Hey Wolf, might be a good article to distill Bessents answers from his hearing today. Said a number of interesting things but wading through the grandstanding in the 3 hour hearing sucks.
Fart coin is being upstaged by the new b-hole coin. Where is this country going?
It really looks like they are going taxpayer money to support crypto and send it soaring upwards – so that the oligarchs and crypto gamblers can take it all in.
This is not going well. And it is not going to end well.
Federal Reserve Governor Chris Waller said today they may be ready to cut even sooner than the market expects. It’s amazing with this data that someone in his position can say something like that. I just don’t understand the need to keep heating up the economy.
They genuinely believe that pivoting back toward accommodation is the right thing to do at this moment.. It’s astounding–and you’d think nothing was astounding after the policy errors of 2020 and 2021.
If they cut 50 basis points this year, the 10-year yield might go to 5.5%. If they cut 100 basis points this year, the 10-year yield might go to 6% (licking my chops), with mortgage rates over 8%. At some point, the bond market is going to get seriously spooked.
I’m starting to think you may have something there, Wolf. It sucks for me as a saver with no appetite for duration, but the Fed really does seem to be pratfalling ass-backwards into higher long term rates.
Wolf, so you see (as I) 6% yield on the 10-yr is close to the limit of what Uncle Sam can afford?
“… the 10-year yield might go to 6% (licking my chops)…”
Sounds like “vigilante justice.” Despite zigs/zags in treasury market, the bond market appears to scent Fed ineptitude around the next couple of corners.
I’m getting 5% on my 1 year CD’s and enjoying every minute of it. I’ll save gambling for my football picks every week.
That’s because you opened those CDs when policy rates were higher.
Still waiting for an example of a new issue CD with a 5% coupon.
The people who are collecting all the chips on the table don’t think they have enough yet. Hubris and greed are a toxic combination.
…attempting to gamble our way to prosperity with an entering Executive whose own casinos went broke…
may we all find a better day.
Yes!
Nothing says gambling quite like pledging future tax receitps to lever up on BitCON. If the US government starts gambling in this toxic casino, we ARE finished.
You guys just don’t “get it,” endlessly soaring profits from fartcoin will be used to pay down the national debt. /s
This is the exactly point I put in comments for CPI article.
As per Waller, latest CPI report is very good. “IF” such good report data continues they can cut rates even in first half of the year. He said March rate is NOT OFF the table and he sees 3-4 cuts in the year, more than what Market is seeing.
If you are optimistic for future CPI coming down that’s ok too. You can say we have Bad CPI data but foresee good data. How 0.4% MOM and so much upward pressures in all sectors is good in any way?
Calling latest CPI report good makes him completely unworthy, irresponsible FED governor.
We had GDP numbers going up, Super Labor reports and Retail Sales. What else you want to see to know economy doing well, labor market is doing well, inflation has come down but still lot to go for the target.
Most Funny part was to see Market Cheerleader (CNBC Reporter) Sara surprised and puzzled at his super dovish comments. Even she couldn’t believe it for sometime.
AFAIK Waller and Logan are known as balance sheet experts. This makes me doubt FED’s QT plans. If he is so dovish and so eager to drop rates, he can not be trusted.
I’m reading today, 4 cuts back on the table, since inflation is doing so well. And Trump, that debt ceiling that could constrain QE, I think the writing is on the wall. Throughout his first term, his tweets were non-stop QE advocacy.
I see a future of near 0% interest rates, and the central bank a principle buyer of government debt, like Japan.
I’m hoping that was an editorial! Can’t believe the stuff they’re writing
Dr. Strangelove or: How I Learned to Stop Worrying and Love the Fed, starring Jerome Powell as Dr. Strangelove.
The doomsday device maybe activated and Dr Strangelove can’t stop it.
GDPNow jumped to 3.0% due to these retail sales, all the while US government is running a sevenish negative budget deficit as a result of the obscene trade deficit and Trump era tax reduction legislation which is now about too expire.
The budget deficit means that the revenues into government through tax receipts are not sufficient to fund the government expenditures without borrowing at least the trade deficit and the obligatory percentage increase in the military budget.
Social Security is not included as an item in the Federal budget. It is a self funded social program to provide at least a minimum of care in old age. Which awaits us all.
The questions I have
– how are they paying for this splurge?
– how much of this is bringing forwards large purchases to avoid the tariffs?
– how much of this is disaster recovery?
– how much is return to work spending, more days in the office means I need to update my wardrobe and get a better car.
I suspect a fair chunk is in those last 3 buckets. Also not sure its sustainable in terms or being able to continue to pay for it all, the stock market gains are not going to repeat at the level they have forever, and I’m not seeing earnings rising at the same levels as retail sales. (Putting monthly earnings vs retail sales in FRED as a comparison graph shows its gone out of balance since the pandemic.)
I know I had loads more available since the pandemic to spend on ‘stuff’ without commuting and paying for expensive coffees and lunches at the office, and I know the 2 days a week has now turned to 3 days, soon to be 4 days and things are much tighter now.
I see a downturn coming….
Good Point..
People have been waiting for this downturn/recession for years to come :-)
There’s a built in solution to the childcare crisis in the work from home new wave….however, they want you to buy that coffee, lunches, gasoline, new cars, work attire etc. Uncontrolled capitalism for the workers…think not.
RTGDFA
Especially read this section under the subheading: “More consumers, more workers, more jobs, more money.” And click on the links for details about where they’re getting this money.
DM: Walgreens CEO makes stunning claim about the impact locking goods up has had on the industry
Walgreens’ CEO has admitted that locking up items to avoid shoplifting has not worked – and it will close stores instead.
Not only has the practice not curbed theft, it has dramatically hit sales.
Over the past few years, major retailers like Walgreens, CVS, Walmart, and Target have increasingly resorted to locking up everyday items such as toothbrushes, deodorant, laundry detergent, coffee, and even milk.
They just figured that out now? Does this guy live behind the moon?
US Treasury Pick Warns Of ‘Economic Calamity’ If US Tax Cuts Not Extended…
Savers were getting near zero percent interest for over a decade. Now they are getting 4.3%. If you had a million you were getting nothing. Now you are getting 43000 per year. That money has to go somewhere. Some back into savings, some into the wall street casino, some to pay down debt, but I bet a big chunk is going into buying stuff, retail stuff.
I have always thought that if the saving rates went up to 10 % + then the economy would flourish because of all the extra cash the savers had getting spent.
Not so good for the people with loans obviously but I didn’t see them losing any sleep when we were getting 1%.
Probably a few other downsides I suppose.
The implication here being that higher interest rates are actually stimulatory? I suppose it’s possible, yet it’s a huge snubbing of the conventional wisdom that only lower rates are stimulatory.
Higher rates benefit lenders at the expense of borrowers.
People with assets are more likely to be lenders, and people without assets are more likely to be borrowers.
Higher rates take from the poor and give to the rich.
DM: Investor who predicted dot-com crash issues chilling three-word warning as another market storm brews
A billionaire investor who predicted the dot-com crash 25 years ago warned that he is ‘on bubble watch’ as warning signs appear to have cropped up in the market.
My $20 haircut went to $25 a few years back. Now to $30. It’s amazing. The Fearless Fed is only afraid of one thing. Not price inflation. Not high interest rates. Not income or wealth inequality. Not unemployment. Not financial stability. They only fear Deflation.
My old barber (RIP) went to $30 in 2019. Been cutting my own hair since 2020 (deflation!). It’s kind of fun to improve my skills with a power tool.
I tried that during the early pandemic and all I can say about the result is, thank God I wasn’t able to have a social life.
Not wanting to spend $200+ on the Flowbee haircut kit, I found a comparable kit from Remington for $50. My apologies to Rick’s Barbershop.
There’s tons of stuff you can save $$ on by doing it yourself. Haircuts, oil changes, searing your own steak (just taught myself that last one).
Also, the Fed only fears deflation in Treasuries. They can let everything else go to zero.
Amazing (but not surprising) how the narrative from Wall Street regarding the PPI and CPI reports has been successfully portrayed as moderating Inflation which will allow the Fed to cut rates more.
The power of Wall Street over the narrative in the MSM is remarkable.
Good to have the sober and excellent analysis from Wolf
Look up who owns the MSM, and who pays for advertising with them.
Bessent should have dropped the mic after this comment “ optimal tariff theory does not support what you’re saying,” said Bessent.
I’m sure everyone was thinking the guys a genius and he knows things that we have no idea what he’s talking about. He’s our guy!