U.S. Consumers Prove Their Resilience With Strong Retail Sales

October 20, 2023

Interest rates are at the highest levels in years, inflation remains elevated, and pandemic-era savings are being whittled down, but the U.S. consumer keeps powering the economy. 

The resiliency of American consumers was on display in the latest retail sales reports, which showed that spending in stores, online, and in restaurants rose 0.7% in September, according to the Commerce Department. That is more than double the 0.3% increase economists from Dow Jones had been expecting.

Sales at gas stations helped boost the headline number, jumping 0.9% for the month as higher gas prices saw consumers spend more at the pump. However, the so-called “control group,” which strips out spending at places like car dealers and gas stations, rose 0.6% for the month.

Retail sales data is not adjusted for inflation, so the latest numbers indicate that consumers are more than keeping pace with price increases. The consumer price index (CPI) inflation gauge was up 0.4% in September. On an annual basis, sales increased 3.8% in September, compared with an annual CPI increase of 3.7%.

Sales gains were broad-based for the month. Online sales climbed 1.1%, while automotive parts and dealers saw a 1% increase and restaurant sales were up 0.9% for the month and 9.2% for the year, which was the highest annual gain for all categories.

One of the few outliers that saw declining sales were electronics and appliance stores, which were down 0.8%. The big-ticket items sold at these stores are frequently purchased via financing, so it is likely that higher interest rates are having a stronger impact on this spending category.

The retail report is a key factor for the Federal Reserve as officials contemplate the future of monetary policy. While markets largely expect the Fed is done raising rates for this cycle, an unexpectedly strong consumer complicates the equation.

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