- Retail sales rise 1.3% in October
- Core retail sales increase 0.7%; September sales revised upwards
- Import prices fall for the fourth consecutive month
- Manufacturing production increased by 0.1%; previous months revised downwards
WASHINGTON, Nov 16 (Reuters) – U.S. retail sales rose more than expected in October as households stepped up purchases of motor vehicles and a range of other goods, suggesting that consumer spending recovered at the start of the fourth quarter, which could help support the economy. .
Strong retail sales reported by the Commerce Department on Wednesday and signs of slowing inflation have raised cautious optimism that the economy may avoid an anticipated recession next year or experience only a mild slowdown. .
While other data showed that manufacturing output barely rose in October, commercial equipment production remained strong. Continued strength in consumer and business spending will keep the Federal Reserve on track to tighten monetary policy further, although lower inflation gives the U.S. central bank room to reduce the magnitude of its interest rate hikes.
“It’s not what the Fed wants to see, but it comes at a time when inflation numbers are starting to improve,” said Eugenio Aleman, chief economist at Raymond James in St. Petersburg, in Florida. “This will keep the Fed on its toes and commit to continuing to raise interest rates in order to slow economic activity.”
Retail sales rose 1.3% last month after remaining flat in September. Economists polled by Reuters had forecast sales to rise 1.0%. Sales rose 8.3% on an annual basis in October.
Retail sales are primarily goods and are not adjusted for inflation. With inflation falling significantly in October, economists estimate that real retail sales rose 0.9% last month.
One-time tax refunds in California, which saw some households receive up to $1,050 in stimulus checks, likely helped support sales in October. Additionally, Amazon (AMZN.O) ran a second Prime Day promotion last month.
The broad-based increase in sales in October was led by motor vehicles, as revenue at auto dealers rebounded 1.3%, reflecting significant improvements in supply.
Sales were also boosted by higher gasoline prices, as gas station receipts rose 4.1%. Online retail sales jumped 1.2%. Furniture store sales increased 1.1%. Sales for food services and drinking places, the only service category in the retail sales report, rose 1.6%.
But sales at electronics and appliance stores fell 0.3%. There were also revenue declines at general merchandise stores as well as sporting goods, hobby, musical instrument and book stores. Clothing store sales remained stable.
The National Retail Federation predicts holiday sales will grow between 6% and 8% this year. Although this is down from the 13.5% recorded in 2021, it would be well above the 4.9% average of the past 10 years.
The upbeat outlook for holiday shopping was somewhat tarnished by Target Corp’s
Stocks on Wall Street were mostly trading lower as the dollar slid against a basket of currencies. US Treasury prices were significantly higher.
Massive savings accumulated during the COVID-19 pandemic and strong wage increases in a tight labor market have generally helped consumers cope with higher prices and higher borrowing costs.
This support is expected to fade next year as tighter monetary policy dampens aggregate demand, weighing on the labor market and the economy. Low-income households are thought to have already exhausted their pandemic savings.
Households also borrow to maintain their spending. Data from the New York Fed on Monday showed total borrowing jumped $351 billion in the third quarter.
The growing debt burden could act as a barrier to spending, especially among lower-income households, although economists expect a limited impact.
“It’s not the level of debt that matters to consumers, it’s the monthly payments needed to fund the debt,” said Ryan Sweet, chief economist at Oxford Economics in West Chester, Pennsylvania. “Debt service and financial obligation ratios are still among the lowest since the 1980s, a testament to the strength of household finances, overall.”
The Fed has raised its key rate by 375 basis points this year, from near zero to a range of 3.75% to 4.00%, as it battles runaway inflation in what has become the fastest rate hike cycle since the 1980s.
Financial markets are betting that the US central bank will switch to a half-percentage-point rate hike at its December 13-14 policy meeting, according to CME Group’s FedWatch tool.
Those expectations were bolstered by a separate report from the Labor Department on Wednesday that showed import prices fell for a fourth straight month in October.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.7% last month. Data for September has been revised upwards to show that these so-called core retail sales rose 0.6% instead of 0.4% as previously reported.
Core retail sales correspond most closely to the consumer spending component of gross domestic product. The Atlanta Fed raised its estimate for fourth-quarter GDP growth to an annualized 4.4% from a 4.0% pace.
The economy grew at a rate of 2.6% in the third quarter after contracting in the first half.
But slowing manufacturing and inventory accumulation could limit growth this quarter. Business inventories rose 0.4% in September, the smallest increase since April 2021, according to another report from the Commerce Department.
A separate Fed report showed that manufacturing output rose 0.1% in October, with production of commercial equipment rising 0.8%.
“We could be in for a ‘soft landing’ after all,” said Paul Ashworth, chief North American economist at Capital Economics.
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Paul Simao
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