U.S. retail sales increased for a third straight month in December, with households buying a range of goods even as they cut back on purchases of motor vehicles, suggesting the economy maintained a moderate growth pace at the end of 2019.
Other data on Thursday showed the number of Americans filing claims for unemployment benefits dropped for a fifth straight week last week, indicating the labor market remained strong despite a recent slowdown in job growth. That should help sustain consumer spending and probably keep the longest economic expansion on record, now in its 11th year, on track.
The Federal Reserve on Wednesday described the economy as having continued to expand modestly in the final six weeks of 2019. The U.S. central bank has signaled that it could keep interest rates unchanged at least through this year after reducing borrowing costs three times in 2019.
The Commerce Department said retail sales increased 0.3% last month. Data for November was revised up to show retail sales gaining 0.3% instead of rising 0.2% as previously reported.
Economists polled by Reuters had forecast retail sales would gain 0.3% in December. Compared to December last year, retail sales accelerated 5.8%. Sales increased 3.6% in 2019.
Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 0.5% last month after falling by a downwardly revised 0.1% in November.
The so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have edged up 0.1% in November.
Sales rose in December despite retailers such as Target Corp , Kohl's, J.C. Penney and Macy's reporting a decline in sales for the holiday period as foot traffic in malls dropped.
Though a report last week showed a slowdown in job growth in December and the increase in the annual wage gain retreating to below 3.0%, the labor market remains on solid footing.
In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 204,000 for the week ended Jan. 11.
Economists had forecast claims would rise to 216,000 in the latest week.
U.S. stocks were trading higher and the dollar was up slightly against a basket of currencies. Prices of U.S. Treasuries were trading lower.
SOME RED FLAGS
While claims are trending lower, there are some worrying signs emerging. The claims data showed layoffs in manufacturing, transportation and warehousing, construction, educational services and accommodation and food services industries in late 2019 and early 2020.
Some of the job losses in manufacturing, which were spread across at least eight states, could be related to the 18-month trade war between the United States and China, which has hurt business confidence and undercut capital expenditure. U.S. President Donald Trump and Chinese Vice Premier Liu He signed an initial trade deal on Wednesday, a first step toward defusing the trade war.
But with U.S. duties remaining in effect on $360 billion of Chinese imports, about two thirds of the total, economists do not expect the so-called "Phase 1" deal to provide a boost to manufacturing.
A third report on Thursday from the Philadelphia Fed showed factory activity in the mid-Atlantic region accelerated in January, with manufacturers reporting receiving more orders. But a measure of unfilled orders at factories in the region that covers eastern Pennsylvania, southern New Jersey and Delaware contracted and manufacturers cut hours for employees.
Even as trade tensions have eased, a dark pall remains over manufacturing, which accounts for 11% of the economy. Boeing has suspended production of its fast-selling 737 MAX jetliner starting this month and ripple effects are already being felt, with a major supplier announcing layoffs last week.
For now, consumers appear set to continue driving the economy, also thanks to house prices and a bullish stock market.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 3.2% annualized rate in the third quarter. Growth in consumer spending is expected to have slowed to around or below a 2.5% rate in the fourth quarter. The economy expanded at a 2.1% pace in the July-September period.
Growth estimates for the fourth quarter are as high as a 2.5% rate, in part because of a drop in imports, which compressed the trade deficit.
In December, auto sales fell 1.3%, the biggest drop since last January, after increasing 1.5% in November. Higher gasoline prices lifted receipts at service stations, which jumped 2.8%. Online and mail-order retail sales rose 0.2% after being unchanged in November.
Sales at electronics and appliance stores rebounded 0.6% in December. Receipts at building material stores surged 1.4% and sales at clothing stores accelerated 1.6%. Spending at furniture stores edged up 0.1%.
Americans also spent more at restaurants and bars, with sales rising 0.2% last month. Spending at hobby, musical instrument and book stores rebounded 0.9%.
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