Summary: US retail sales up 0.6% in December, rise exceeds expectation; annual growth rate accelerates to 5.6%; US Treasury yields rise; rate-cut expectations soften; higher sales in nine of thirteen categories; “non-store retails” largest single influence on month’s result.
US retail sales had been trending up since late 2015 but, commencing in late 2018, a series of weak or negative monthly results led to a drop-off in the annual growth rate below 2.0%. Growth rates then increased in trend terms through 2019 and into early 2020 until pandemic restrictions sent them into negative territory. A “v-shaped” recovery then took place which was followed by some short-term spikes as federal stimulus payments hit US households in the first and second quarters of 2021.
According to the latest “advance” numbers released by the US Census Bureau, total retail sales increased by 0.6% in December. The result exceeded the 0.4% increase which had been generally expected as well as November’s 0.3% rise. On an annual basis, the growth rate accelerated from November’s revised rate of 4.0% to 5.6%.
The figures were released on the same day as the latest industrial production report and US Treasury yields rose, especially at the short end of the curve. By the close of business, the 2-year Treasury yield had jumped 13bps to 4.35%, the 10-year yield had added 4bps to 4.10% while the 30-year yield finished 1bp lower at 4.31%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months softened while still factoring in several cuts. At the close of business, contracts implied the effective federal funds rate would average 5.32% in February, 1bp less than the current spot rate, 5.275% in March and 5.185% in April. January 2025 contracts implied 3.92%, 141bps less than the current rate.
Nine of the thirteen categories recorded higher sales over the month. The “Non-store retails” segment provided the largest single influence on the overall result, rising by 1.5% over the month and contributing 0.26 percentage points to the total.
The non-store segment includes vending machine sales, door-to-door sales and mail-order sales but nowadays this segment has become dominated by online sales. It now accounts for 17% of all US retail sales and it is the second-largest segment after vehicles and parts.