Retail Sales: December 2023

The consumer held up well going into 2024 


The solid increase in December retail sales is a testament to consumers’ continued willingness to spend despite a cooling labor market and eroding financial buffers. While the report bolsters our view that the consumer and overall economy held up well at the end of 2023, we expect consumer spending growth to downshift in the coming months as households navigate a choppier economic and labor market environment. 


Retail sales surprised on the upside with a 0.6% gain over the month, which came on the back of an unrevised 0.3% increase in November. Encouragingly, the volume of sales rose 0.3% for a second consecutive month, after adjusting for the 0.3% increase in December consumer prices. 


Control retail sales — a key gauge of consumer spending trends that strips out volatile retail segments — posted a robust 0.8% advance, and the October and November gains were revised a tick higher to 0.1% and 0.5% increases, respectively. Overall, the latest data points to above-trend consumer spending growth of around 2.7% in Q4 2023. 


The solid December performance reflected strong sales by auto dealers and non-store retailers. Sales at auto dealers rose 1.1%, a second consecutive monthly gain that echoes the increase in unit auto sales reported earlier in the month. Many consumers opted for online holiday shopping last month as non-store retail sales grew 1.5% following a similarly sized increase in November. But some holiday shopping also took place at the mall, judging by the 1.3% increase in general merchandise store sales, the largest such gain in a year. It appears that consumers favored clothing over electronics this holiday season as sales at electronics and appliance stores fell for a second straight month while sales of clothing grew by 1.5% and 1% in November and December, respectively. 


On a cautious note, sales at restaurants and bars were flat in December. This suggests that services spending could have been muted during the month — the data will be released later this month as part of the U.S. Bureau of Economic Analysis’ personal income and outlays report.


Looking at the broader trend, retail sales momentum is proving resilient. The annual trend in retail sales rebounded from 4% year over year (y/y) in November to 5.6% y/y in December, and in inflation-adjusted terms, retail sales are now 2.2% higher relative to last year. 


Despite cooler labor market conditions, still-solid wage growth and receding inflation helped support steady consumer spending trends into 2024. The combination of surging stock markets and falling gasoline prices also helped lift consumers’ spirits at year-end. Going forward though, we expect consumer spending momentum to cool further as labor market momentum softens and cost fatigue sets in. We project that consumer spending will grow around 1.3% in 2024 after an expected 2.2% advance in 2023.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.