US Retail Sales Unchanged; resilient consumers

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  • Retail sales unchanged in September; August revised upwards
  • Core retail sales increase 0.4%; up 0.2% in August
  • Import prices fall by 1.2%; up 6.0% year-on-year

WASHINGTON, Oct 14 (Reuters) – U.S. retail sales were surprisingly flat in September as households cut back on purchases of motor vehicles and other big-ticket items like electronics and appliances amid stubbornly high inflation and rapidly rising interest rates.

But consumers aren’t rolling yet, with Friday’s Commerce Department report also showing a measure of underlying retail sales rising last month, helped by strong wage increases and savings. These so-called core retail sales were also stronger than initially thought in August.

“Consumer resistance may be waning, but it shows few signs of breaking,” said Tim Quinlan, senior economist at Wells Fargo in Charlotte, North Carolina. “Overall spending will continue to moderate as inflation persists and monetary policy tightening begins to weigh more significantly on consumption.”

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The unchanged retail sales reading last month followed an upwardly revised 0.4% rise in August. Sales in August would have previously increased by 0.3%. Retail sales rose 8.2% year on year in September. Economists polled by Reuters had forecast sales to rise 0.2%, with estimates ranging from a 1.1% decline to a 0.8% increase.

Retail sales are primarily goods and are not adjusted for inflation. Soaring rent and health care costs are squeezing the budgets of many Americans, causing them to cut spending on goods. The situation has been made worse by higher borrowing costs, which make credit more expensive.

Economists saw no impact on monetary policy from the mixed retail sales report.

A University of Michigan survey on Friday showed consumer confidence improved further in October, but inflation expectations deteriorated slightly as national average gasoline prices rose toward $4 a month. gallon after dropping over the summer.

UMich

“The (retail sales) data doesn’t show the kind of overheating that would necessitate more aggressive rate hikes, or the kind of rapidly deteriorating consumer spending that would encourage a pause,” said Will Compernolle, senior economist at FHN. Finance in New York. York.

The Federal Reserve raised its key rate from near zero in March to the current range of 3.00% to 3.25% as it battles inflation. A fourth straight interest rate hike of 75 basis points is expected next month after data on Thursday showed a sharp rise in inflation in September.

Retail sales are also slowing as spending shifts back to services. Sales at car dealerships fell 0.4% last month, while revenue at gas stations fell 1.4%.

Sales at furniture stores fell 0.7%, while those at building material and garden equipment retailers fell 0.4%.

Receipts at electronics and appliance stores fell 0.8%. Sales at hobby, musical instrument and book stores also fell, a sign that consumers have cut back on discretionary spending.

But sales at clothing and general merchandise stores increased, as did those at online and mail-order retailers. Revenue from bars and restaurants, the only service category in the retail sales report, rose 0.5%.

“While consumers remain willing to spend, many families, especially those at the lower to middle end of the income scale, are feeling increasingly constrained by high prices and rising interest rates. of interest,” said Gregory Daco, chief economist at EY-Parthenon in New York.

Stocks on Wall Street were trading lower as earnings season kicked off with lower profits for major banks. The dollar appreciated against a basket of currencies. US Treasury prices fell.

Retail sales

UNDERLYING STRENGTH

According to the National Retail Federation, consumers spend on household priorities. The NRF says removing tariffs on Chinese goods and passing immigration reforms to address labor shortages could complement the Fed’s efforts to tame inflation.

“As we enter the holiday season, shoppers are increasingly looking for deals and discounts to make their money work, and retailers are already responding to that demand,” said NRF President Matthew Shay. “However, the Biden administration must adopt policy measures to relieve inflationary pressure and reduce costs for American families.”

Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.4% last month. Data for August has been revised up to show that core retail sales rose 0.2% instead of being unchanged as previously reported.

Core retail sales correspond most closely to the consumer spending component of gross domestic product. The increase in September and the upward revision to August data left economists expecting consumer spending growth likely exceeded an annualized rate of 1.0% in the third quarter after rising to a rate of 2.0% during the April-June quarter.

GDP is expected to have rebounded in the last quarter after two consecutive quarterly declines, as slowing domestic demand dampens imports and leaves a stockpile of unsold goods in warehouses. A third Commerce Department report showed business inventories rose 0.8% in August.

Business inventories

Estimates of GDP growth in the third quarter reach a rate of 2.9%. The economy contracted at a 0.6% pace in the second quarter. The government is expected to release its third-quarter GDP snapshot at the end of this month.

There were, however, some glimmers of hope in the fight against inflation. A Labor Department report released on Friday showed import prices fell for a third consecutive month in September, led by lower petroleum product costs and a strong dollar, suggesting imported inflationary pressures were easing. as global supply chains improved.

Import prices fell 1.2% last month after dropping 1.1% in August. In the 12 months to September, import prices rose 6.0%, the smallest increase since February 2021, after rising 7.8% in August.

“These recent declines likely reflect the effects of lower commodity prices and the stronger dollar, and suggest some easing pressure on domestic inflation, primarily on the goods side,” said Daniel Silver, economist at JPMorgan in New York.

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Reporting by Lucia Mutikani Editing by Nick Zieminski and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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