“Advance estimates of U.S. retail and food services sales for December 2024, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $729.2 billion, an increase of 0.4 percent (±0.5 percent)* from the previous month, and up 3.9 percent (±0.5 percent) from December 2023,”according to the US Census Bureau.
Retail sales make up one-third of spending, and during good times such as after the last two recessions, soared above 8 percent annually. But the current 3.9 percent annual spending rise is not adjusted for inflation, so the sales rate is mostly due to inflation that is stuck in the 2 to 3 percent range.
But stocks and some bonds are rallying as consumers keep spending because they are fully employed and continue to have savings left over from the government’s post-pandemic aid programs.
It’s also the reason Federal Reserve Banks, such as the Atlanta Fed’s GDPNow estimate, are predicting 3 percent GDP growth again in the fourth quarter as seen in their graph. This will be the third consecutive quarter of 3 percent GDP growth.
And if consumers continue to shop as they have been, inflation won’t get any better in 2025. In fact, if Trump follows through on his tariff promises, inflation may get worse and maybe even cause the US Fed to raise interest rates again. It’s going to be an interesting battle between the Trump administration wanting to push rates lower and the Fed wanting to push inflation lower. They aren’t compatible, needless to say.
We should probably call this another era of irrational exuberance, as former Fed Chair Alan Greenspan foresaw in 1996 preceding the 2000 Dot-com bubble. It really means investors tend to follow the herd because most of their information isn’t based on research, but “hearsay and word-of-mouth”, in the words of Nobel Laureate Robert Shiller.
Irrational exuberance can be a terrible thing and has been studied by more than one Nobel Laureate. We are still recovering from the Great Recession and consequent housing shortage because of it.
So the moral should be: “Don’t believe in all the misinformation you hear,” and will be hearing this year!
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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