Retail Sales See First Decline Since March As Economic Growth Cools

November 17, 2023

U.S. consumers were less willing to open their wallets last month, cutting spending and leaving some analysts to wonder if we are headed for a gloomy holiday shopping season.

Retail sales, which includes spending in stores, online, and in restaurants, fell 0.1% in October from the month prior, according to data from the Commerce Department. That marks the first monthly decline since March, and is a substantial slowdown from the 0.9% growth seen in September and robust gains earlier in the summer. The retail figures, combined with slower hiring and easing inflation, suggest that the economy is finally cooling after showing surprising resiliency throughout much of the year.

Sales at auto dealerships slowed significantly as higher interest rates deterred Americans from making big-ticket purchases. Falling gas prices also led to lower spending at gas stations, but even with these two categories excluded, retail sales gained just 0.1% compared to the averaged 0.6% gain seen over the past six months.

Retail sales figures are not adjusted for inflation, so slower spending also partly reflects the cost of many goods that have fallen in recent months, such as used vehicles, electronics, and grocery items like milk and eggs.

Slowing consumer demand will assuage worries that the summer’s spending surge would sustain higher inflation. A slowdown could raise hopes that inflation will return to its pre-pandemic norm without a recession.

Americans spent lavishly over the summer on things like concerts, travel, and expensive gasoline. That propelled the economy to accelerate to a 5% growth rate, but now, there are signs of a sharp slowing. Economists at S&P Global Market Intelligence estimate that the economy will slow to a 1% growth rate in the fourth quarter.

Consumer spending accounts for roughly two-thirds of total economic activity, so a slowdown in consumer spending would be a major drag on the economy, especially in the fourth quarter. The National Retail Federation expects spending this holiday season, which it defines as the period between Nov. 1 and Dec. 31, to grow 3% to 4% from the same period last year. That would be down from the 5.4% increase in holiday sales last year and down dramatically from the 12.7% jump seen in 2021.

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