US Retail Sales Defy Expectations, Exceeding Projections Despite Higher Interest Rates

US retail sales for the full year of 2023 increased by 3.2 percent compared to 2022, exceeding expectations despite the fear of weakening consumer demand due to higher interest rates. This strong showing has been supported in part by a resilient job market. The rapid increase in the Federal Reserve's benchmark lending rate was expected to impact consumer spending but has generally held up, with retail sales in December 2023 being 5.6 percent higher than in December 2022. The increase in sales was driven by robust performances in motor vehicles and department stores, while sales at gasoline stations and health and personal care stores saw a decline.

Despite the positive sales figures, analysts have cautioned that these estimates can be significantly revised. The US economy remains on solid ground, thanks to consumers stepping up purchases of motor vehicles and retailers offering discounts. The healthy pace of spending and a relatively strong labor market have helped to prevent a recession, and most economists are confident that the economy will avoid a downturn.

A closer look at core retail sales reveals that they jumped 0.8 percent last month. Economists are estimating that consumer spending had an annualized rate of over 2.0 percent in the fourth quarter, contributing to an overall economic growth estimate as high as a 2.2 percent rate. The government is set to publish its first estimate of GDP growth for the October-December quarter soon.