Robust holiday shopping sends economy soaring into 2024

On Tuesday, fresh retail sales data from Mastercard showed that consumers spent big on gifts, meals and apparel in November and December despite inflation’s lingering bite. Add on strong consumer confidence, and the S&P 500’s approaching an all-time high, and it’s clear that the U.S. economy is in a far better place than just about anyone expected, zapping any hints of a recession and bolstering hope that people will keep opening their wallets in 2024.

“Given the significant uplifts in holiday sales over the past couple of years, and the current pressures on consumer finances, this level of growth can be chalked up as something of a win for consumers,” said Neil Saunders, managing director for retail at GlobalData.

U.S. retail sales between Nov. 1 and Dec. 24 were up 3.1 percent compared with the same period a year before, according to Mastercard SpendingPulse, which measures sales in-store and online across various forms of payment. Online shopping accounted for a large share of the increase, rising 6.3 percent, compared with a 2.2 percent jump for in-person shopping. Apparel sales rose 2.4 percent. Plus, strong demand for in-person dining powered a 7.8 percent jump in restaurant spending.

Some categories showed declines: Jewelry sales, for example, fell 2 percent, while electronics declined 0.4 percent. (The overall report excludes car sales and is not controlled for inflation.)

The cheery holiday report was expected, building on a strong summer and third quarter, when the economy grew like gangbusters. Sales on Black Friday set a record of $9.8 billion, up 7.5 percent from the year before. Cyber Monday came in even higher at $12.4 billion, according to Adobe Analytics.

This year’s spending on concerts, plane tickets and movies also held strong in the face of higher-thannormal inflation, all as the Federal Reserve pushed to slow the economy. This year central bankers got borrowing costs high enough to make it prohibitively expensive for many people to buy homes or cars, or for businesses to get fresh credit. The goal is to tame consumer demand and get inflation down to a more normal level of 2 percent, stabilizing the economy after the pandemic’s upheaval.

By many measures, the Fed’s fight is working. Inflation eased to 2.6 percent in November compared with the year before, using the Fed’s preferred gauge. The job market is still growing, but at a more sustainable pace. And for the first time since the pandemic’s early days, central bankers are eyeing interest rate cuts, a clear signal that officials think they can take their foot off the brake and let the economy continue flourishing.

Fed officials won’t offer a clear timeline on when they might shift to rate cuts in 2024. But the financial markets didn’t wait to celebrate, with the Dow Jones Industrial Average hitting an all-time high this month, and the S&P 500 inching closer to its own record. Through it all, the Fed’s message remains measured but clear: The economy – two-thirds of which is powered by consumer spending – is in good shape.

“We’re obviously looking hard at what’s happening with demand,” Fed Chair Jerome H. Powell said this month. “We see the same thing other people see, which is a strong economy, which really put up quite a performance in 2023.”