Will Holiday Sales Be The Retail Slump Savior?

The holiday shopping season is in full swing, with sales results showing that, so far, U.S. consumers are opening their wallets to make the most of it.

Late last week, Reuters reported that the Federal Reserve is even expected to hike interest rates based on the momentum the holiday season has brought to the economy. Consumer spending now accounts for nearly two-thirds of economic activity and has also caused a boost to consumer sentiment this month.

“It dismisses any concerns of a potential slump in household spending after some weakness in the last few months. Not that there is much doubt any more, but this supports the case for a rate hike by the Fed next week,” Steve Murphy, U.S. economist at Capital Economics in Toronto, told Reuters.

According to the Commerce Department, core retail sales increased 0.6 percent after rising another 0.2 percent in October. These sales, which exclude automobiles, gasoline, building materials and food services, are what the department said are more closely aligned with the consumer spending portion of the gross domestic product.

“Consumers aren’t being overly lavish in their spending, but they’re still spending,” James Rhee, CEO of Ashley Stewart, a plus-size women’s clothing retailer, told The Wall Street Journal.

“They are concentrating their spending with fewer retailers and being more exacting in their demand for differentiated product and experiences.”

While consumer spending reportedly slowed in September and October, a separate report from the University of Michigan found that its consumer sentiment index spiked to 91.8 in early December, compared to 91.3 in November.

“Consumer sentiment remains elevated … That speaks well of the current consumer mindset and bodes well for stronger consumer spending in the coming quarters,” Jim Baird, CIO at Plante Moran Financial Advisors, explained to Reuters.

November saw a rise in discretionary spending, which points to a strong start to the holiday shopping season. Policymakers are expected to meet on Wednesday, when the Fed may bring up its benchmark overnight interest rate from near zero.