Retail Sales in the U.S. Beat Expectations in September; Core Retail Sales Continue to Rise 

Retail sales in the United States increased more than expected in September as households spend more on bars and restaurants and booster purchases of motor vehicles, suggesting the economy ended the third quarter on a solid note.

On Tuesday, the Commerce Department said retail sales rose 0.7% last month. August data was also revised higher to show sales growing 0.8% instead of 0.6% as was previously reported.

Despite resiliency, headwinds continue to rise for consumers. Higher interest rates persist as the Federal Reserve continues to tackle inflation, pushing credit card delinquencies to an 11-year high. 

Consumers increasingly rely on credit cards to fund purchases. Millions of Americans resumed student loan payments in October, which economists estimate to equal around $70 billion, or about 0.3% of disposable personal income. 

However, consumer spending continues to be driven by a tight labor market, with 336,000 jobs created in September. 

Excluding gasoline, food services, automobiles, and building materials, retail sales rose 0.6% in September. August data was revised to show the core retail sales gaining 0.2% instead of 0.1% as was previously reported.

Core retail sales correspond closely with the component of consumer spending of the GDP. Spendings by consumers is expected to have increased in the third quarter, due to a July surge. Additionally, spending on services remained solid, which could increase overall consumption.

Estimates for gross domestic product growth for the third quarter continue to be as high as a 5.1% annualized growth.

During the April-June quarter, the economy grew at a 2.1% pace and continues to push forward despite the Fed hiking its overnight benchmark interest rate by 525 basis points since March of 2022 to the range of 5.25% – 5.50%.

Retail sales in September grew from the previous month

and reflected a continuing resilience in the U.S. consumer despite slowdown predictions.

September retail sales rose 0.7% from the previous month, which is over double Wall Street estimates of 0.3% growth. Sales excluded gas and auto increased 0.6% above sales in August and revised up to 0.8% from a 0.6% that was previously increased.

Consumer spending stronger than expected despite rate hikes

A Commerce Department September report offers a glimpse of consumer spending during a time when economic data has been largely stronger than expected despite the Federal Reserve interest rate hikes. 

The September retail sales growths come despite increasing headwinds that face consumers like skyrocketing gas prices, tightening credit environments, and the resuming of student loan payments.

“While mounting headwinds to consumer incomes mean we expect spending growth to slow in the months ahead, the risks that spending contracts outright are fading,” said Michael Pearce, Oxford Economics head U.S. economist, in a Tuesday research note.

From nine of the 13 categories that were highlighted in the release, increases were seen from a month prior while sporting goods were the one category that was unchanged since August. Miscellaneous store retail sales led all categories and increased 3% from August. Non-store sales at resources jumped 1.1% while sales at parts and motor vehicle dealers was the increase, from 1% since September.

The sluggish areas include appliance and electronics stores, along with sales of clothing, which both fell from 0.8% when compared to the previous month.

Consumer spending has been resilient as one of the key crucial factors keeping the U.S. out of recession during 2023, however, some banking institutions have indicated recently that a slowdown is likely ahead.

Jamie Dimon, JPMorgan CEO, said Friday that businesses and consumers “generally remain healthy,” but their cash is being spent. Brian Moynihan, CEO of Bank of America, describe the U.S. economy’s state as one where the consumer is continuing to spend ahead of the past year but “continuing to slow.”