U.S. November Retail Sales Beat Expectations, Market Delays Fed Rate Cut Expectations Again

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The U.S. retail sales exceeded market expectations in November, demonstrating the resilience of U.S. consumer spending. This has led the market to further postpone its expectations for the Federal Reserve (Fed) to lower interest rates next year.

The U.S retail sales grew by 3.8% year-on-year (prior: 2.9%) and 0.7% month-on-month (prior 0.5%) in November, according to U.S. Census Bureau on December 17, both outperforming market forecasts of 3.6% and 0.6%, respectively.

Among 13 major retail categories, seven showed growth, with the increase primarily driven by automotive-related sales and e-commerce:

• Automotive-related sales: Up 6.5% year-on-year (previously 3.7%) and 2.6% month-on-month (previously 1.8%). This reflects promotional discounts from car dealerships that spurred purchases. Additionally, vehicle damage caused by October’s hurricanes and concerns about potential tariffs under Trump’s policies may have further boosted sales.
• E-commerce sales: Up 9.8% year-on-year (previously 6.9%) and 1.8% month-on-month (previously 0.1%). This growth was largely driven by Thanksgiving and Black Friday promotions. However, it may also indicate that some consumers, constrained by limited purchasing power, shifted toward discounted goods. This aligns with a decline in food services and bar sales, which fell 0.4% month-on-month (previously up 0.9%).

Excluding automotive and gasoline station sales, core retail sales grew 3.9% year-on-year (previously 3.8%) and 0.2% month-on-month (unchanged). Further excluding food services and building materials, control group core retail sales increased 4.3% year-on-year (previously 3.7%) and 0.4% month-on-month (previously down 0.1%).

Overall, while e-commerce and dining-out data may suggest weakening spending capacity, particularly among lower-income groups, consumer spending as a whole remains resilient. It continues to provide strong support for fourth-quarter GDP growth. The latest forecast from the Atlanta Fed projects U.S. real GDP growth of 3.1% in Q4, up 0.3 percentage points from Q3.

Later today, the Federal Reserve is set to announce its final rate decision and Summary of Economic Projections for the year. While strong consumer growth persists, downside risks in the labor market remain. The market expects the Fed to cut rates by 25 basis points in December but anticipates a slower pace of rate cuts in 2025.

According to FedWatch, the Fed is now expected to cut rates by 25 basis points in March and October 2025 (previously March and June).

(Fed Rate Cut Expection in 2025, Source: CME FedWatch Tool)