US retail sales beat expectations in sign of economy's strength

US retail sales increased more than expected in November as households stepped up purchases of motor vehicles and online merchandise, consistent with strong underlying momentum in the economy as the year winds down.

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The report from the Commerce Department on Dec 17 had no impact on expectations that the Federal Reserve would cut interest rates on Dec 18 for the third time since the central bank initiated its policy easing cycle in September.

"The market is still discounting a 25-basis-point rate cut tomorrow, but if consumers are still buying interest-sensitive goods like autos, a rational markets observer would have to wonder why would a central bank add fuel to the fire with a president-elect coming in at the end of January with one of the most pro-growth agendas of any president in history," said chief economist Christopher Rupkey at FWDBonds.

Retail sales jumped 0.7 per cent in November after an upwardly revised 0.5 per cent gain in October, the Commerce Department's Census Bureau said.

Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, advancing 0.5 per cent. Estimates ranged from a 0.1 per cent dip to a 1 per cent surge. Retail sales increased 3.8 per cent year on year in November.

Labour market resilience, characterized by historically low layoffs and strong wage growth, is underpinning consumer spending.

Strong household balance sheets, reflecting record stock market prices and high home prices, are also driving spending. Household savings remain supportive.