Retail Sales Show Boost in December Spending, Signaling Good News for These Holdings
The data backs our payment, digital shopping, and membership warehouse plays.
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Let's take a deep dive into retail sales for December and what they could say about several of our holdings in the Pro Portfolio.
On the headline, retail sales rose 0.4%, compared to November, missing the 0.6% consensus forecast. But stripping out auto sales, the December figure of 0.4% matched market expectations. If we go one step further and exclude autos, gas, and food service, retail-only sales rose 0.6% compared to December, which equates to a 4.2% gain compared to December 2023. Comparing that 4.2% figure against the 3.8% one for the December quarter found in today’s report tells us consumer spending accelerated during the month, but was slower at restaurants and bars (technically called "food service and drinking establishments"). In our view, that’s a net positive for our shares of American Express AXP and Mastercard MA.
Given the holiday-filled month of December, we’re not surprised by improved grocery sales during the month. When we factor in the increase we saw in the December FAO Food Price Index, however, the reported year-over-year gain of 3.3% for grocery was driven more by price than volume.
As expected, one of the stronger categories for the month and quarter found in the retail sales line items was non-store digital shopping. That category rose 6.0% year over year and 7.5% for the quarter, compared to 4.2% and 3.8% for retail-only sales. This confirms our thinking that consumers would use digital shopping not only during the holiday season, but also to stretch their spending dollars. As we see it, the data supports our view on Amazon’s AMZN retail-facing business, and we see that continuing in 2025.
Sizing up the retail sales report and Costco’s COST revenue report for December offers clear confirmation the membership-driven warehouse company continues to take consumer wallet share. Again, not much of a surprise to us, but we could see some laggards on Wall Street revisit their COST price target on this “revelation.”
We now wait for today’s GDPNow model update from the Atlanta Fed. The last reading of this rolling forecast pegged Q4 2024 GDP at 2.7%, but that figure was published before last week’s blowout December jobs report and other data since published.
Odds are we’ll see an upward revision in the model, which would be a signal on top of this week’s inflation readings the Fed isn’t poised to deliver another rate cut anytime soon.
While yesterday’s core CPI figure for December did come in a tad softer than expected, as you can see in the table above, it’s still quite a distance from the Fed’s target on a reported basis and on a three-month moving average, which, per Fed Chair Powell, is how the Fed is looking at the data.
The Pro Portfolio is long AMZN, AXP, COST and MA.
