U.S. retail sales in November showed strong growth, buoyed by a surge in auto purchases that overshadowed mixed results in other areas.

On Tuesday, U.S. retail sales month-on-month for November recorded a 0.7% increase, exceeding the expected 0.5%, with the previous value revised from 0.4% to 0.5%. November retail sales increased from the previous month, reflecting the ongoing resilience of U.S. consumers and serving as an initial sign of a strong start to the U.S. holiday shopping season.

Sales excluding automobiles and gasoline grew by 0.2% in November, below the general expectation of 0.4%. Data from the control group released on Tuesday (which excludes several volatile categories and factors) grew by 0.4%, in line with expectations.

The report failed to trigger a significant market reaction. After the data was released, spot gold briefly fell by $3, the dollar index dipped by 8 points, and the yield on the U.S. 10-year Treasury bonds decreased.

Out of the 13 categories reported, 7 showed growth. November car sales tracked by Ward's Automotive Group were the strongest in over three years, driven by lower interest rates and significant year-end discounts offered by dealers.

Sales of new cars and trucks surged 2.6% in November, leading retail growth. An increase in auto sales is typically a sign of a strengthening economy, as it represents a significant expenditure for buyers. E-commerce sales grew by 1.8%, with promotions on platforms like Amazon and Douyin generating huge sales. Revenue at building materials stores increased by 0.4%.

A negative sign is that restaurant sales fell by 0.4% during the month. When the economy is healthy and Americans feel secure in their jobs, restaurant sales tend to rise. They usually decline during times of economic stress. As the only service industry category in the retail report, spending at restaurants and bars declined for the first time since March.

Data shows that consumers remain resilient during the critical holiday shopping season, attracted by discounts and buoyed by income growth outpacing price increases. Since the November elections, confidence indicators have also been on the rise, with some consumers indicating that they can avoid higher prices from potential new tariffs by purchasing big-ticket items now.

The resilience of the labor market—evidenced by historically low layoff rates and strong wage growth—is supporting consumer spending and maintaining the pace of economic expansion. Additionally, strong household balance sheets, reflected in record stock market prices and high home values, are also driving consumption. Household savings continue to support spending.

Federal Reserve officials are expected to lower interest rates by 25 basis points on Wednesday, which would be the third rate cut since the U.S. central bank began its easing cycle in September. According to data from the Chicago Mercantile Exchange's Fed Watch Tool, the market expects a roughly 97% chance that the Fed will cut rates by 25 basis points on Wednesday.

Strong retail sales along with relatively mild inflation readings in recent months suggest that the Federal Reserve may pause rate cuts in January. Policies planned by the incoming administration of President-elect Trump, including tariffs on imported goods and large-scale deportations of undocumented immigrants, are also seen as potentially complicating issues for the Federal Reserve.

Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, stated: "Inflation that is above target and persistent will influence the Federal Reserve's decisions next year, but given that tariffs are expected to squeeze real after-tax income and undermine confidence, we believe the committee will initially be more concerned about the labor market."

Consumer spending grew at an annualized rate of 3.5% in the third quarter, accounting for most of the 2.8% economic growth during that period. The Atlanta Fed currently forecasts that GDP will grow at a rate of 3.3% in the fourth quarter.

Article forwarded from: Jinshi Data