Retail sales jump in December. Good holiday-shopping season shows strength of U.S. economy.

Retail sales represent about one-third of all consumer spending and offer clues on the strength of the economy. Sales grew a solid 5.6% in 2023, almost double the rate of inflation

Big picture: The robust retail report bolsters the case for the Federal Reserve to wait a while before cutting interest rates given the strength of the economy, analysts say. It also shows little threat for now of recession.

Yet consumer spending is unlikely to boost gross domestic product as much in the fourth quarter as in the third quarter. GDP is the official scorecard of the U.S. economy.

GDP is seen slowing to 1% to 2% in the final three months of the year from nearly 5% in the third quarter, the latest estimates show.

Whatever the case, Americans are spending more than enough money to keep the economy expanding and out of recession, even as high interest rates and still-elevated inflation exert some drag on growth.

Key details: Sales rose 3% in December at department stores, 1.5% at Internet retailers and clothing stores, and 1.1% at auto dealers. Those were the standout performers.

Sales fell at stores that sell furniture and appliances, likely because of slower home buying. High interest rates have depressed the housing market.

Receipts also declined at pharmacies, home centers and gas stations. Lower oil prices gave consumers some relief.

Sales at restaurants were flat. Restaurant sales tend to rise when the economy is healthy and Americans feel secure in their jobs. Sales decline during times of economic stress.

Looking ahead: “With a still solid labor market, lower gasoline prices, and interest rates edging lower, December retail sales reflect an economy that, although slowing, continues to be underpinned by consumer spending,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, N.C.

Market reaction: The Dow Jones Industrial Average
DJIA
and S&P 500
SPX
fell slightly in Wednesday trades.