Holiday Retail Sales Come In Hot: Is It Ammo For The Fed To Remain Hawkish?

Mastercard Inc MA issued preliminary holiday 2022 retail sales insights Monday, falling in line with The National Retail Federation’s (NRF) November predictions, indicating that American consumers displayed resilience amid increasing economic pressures during the holiday season.

This information can be viewed as a double-edged sword. Here's why. 

What Happened: Mastercard’s SpendingPulse, which aggregates sales activity in the Mastercard payments network, coupled with survey-based estimates for other payment forms, showed that from Nov. 1 through Dec. 24, U.S. retail sales — excluding automotive — increased 7.6% year-over-year, falling in-line with the NRF’s calls for between 6% and 8% year-over-year growth.

Here are the trends over the 2022 holiday season;

Online sales grew 10.6% compared to the same period last year, with e-commerce making up a total 21.6% of all retail sales, indicating the consumer was prioritizing convenience and the availability of discounts during a year of record-high inflation.

Black Friday sales this year were up 12% over 2021, with the holiday retaining its title as the top spending day of the year. Amazon.com, Inc AMZN, an e-commerce leader, said that Black Friday 2022 was the biggest weekend for the company, in terms of shopping volume.

Consumers are spening more on in-person experiences, too, as most Americans try to put COVID-10 in the rearview mirror. In-person dining experiences were up 15.1% year-over-year.

Why It Matters: While American consumers have shown resiliency in the face of increasing economic pressures, the Federal Reserve has embarked on what is nearing a one-year journey to take inflation down from 40-year highs, and bring down household spending that has aided consumer price increases.

The central bank has raised the benchmark lending rate seven times this year, with higher borrowing rates already battering sectors like housing.

The core personal consumption expenditures price index (PCE), the Fed's favored inflation gauge, increased 4.7% last month over November 2021.

Read also: This Day In Market History: US Federal Reserve System Is Created

Contrary to the more well-known consumer price index (PCI), the PCE price index focuses on actual consumer expenditure, including transitions to lesser priced goods.

Food prices drove a 0.1% increase in the PCE price index from October to November, suggesting the Fed will continue to tighten monetary policy.

And while holiday sales increasing year-over-year can be seen as a boon to the economy, the Fed is raising rates at a rapid pace to slow the American economy, and rein in household spending to bring overall inflation down.

The Last Word: Although this year's increase in holiday retail sales is good news for American households and those who gave and received gifts throughout the season, it may also be a sign that the Fed will continue to pursue hawkish policy, raising rates through 2023.

Photo via Shutterstock.