By Lucia Mutikani
WASHINGTON- US retail sales increased more than expected in November as households stepped up purchases of motor vehicles and online merchandise, consistent with strong underlying momentum in the economy as the year winds down.
The report from the Commerce Department on Tuesday had no impact on expectations that the Federal Reserve would cut interest rates on Wednesday for the third time since the US central bank initiated its policy easing cycle in September.
Fed officials started a two-day policy meeting on Tuesday. Signs of strong domestic demand added to warmer inflation readings in recent months in suggesting that the Fed could pause rate cuts in January.
Policies planned by President-elect Donald Trump’s incoming administration, including tariffs on imports and mass deportations of undocumented immigrants, are also seen complicating matters for the central bank.
“The market is still discounting a 25-basis-points rate cut tomorrow, but if consumers are still buying interest-sensitive goods like autos, a rational markets observer would have to wonder why would a central bank add fuel to the fire with a president-elect coming in at the end of January with one of the most pro-growth agendas of any president in history,” said Christopher Rupkey, chief economist at FWDBONDS.
Retail sales jumped 0.7 percent last month after an upwardly revised 0.5 percent gain in October, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.5 percent. Estimates ranged from a 0.1 percent dip to a 1.0 percent surge.
Retail sales increased 3.8 percent year-on-year in November.
Labor market resilience, characterized by historically low layoffs and strong wage growth, is underpinning consumer spending.
Strong household balance sheets, reflecting record stock market prices and high home prices, are also driving spending.
Household savings remain supportive.
Economists expect policymakers will signal fewer rate cuts in 2025 when they update their summary of economic projections on Wednesday. The Fed’s benchmark overnight interest rate is currently in the 4.50 percent-4.75 percent range, having been hiked by 5.25 percentage points between March 2022 and July 2023.
“Unless the labor market materially weakens, investors should expect the Fed to ease rates next year but not as much as originally hoped,” said Jeffrey Roach, chief economist at LPL Financial. — Reuters
