People visit a retail store during the holiday season in New York City, U.S., December 15, 2022. Portal/Eduardo Munoz/File Photo Acquire LICENSE RIGHTS
- Retail sales rose 0.7% in September
- Core retail sales rise 0.6%; August sales were revised upwards
WASHINGTON, Oct 17 (Portal) – U.S. retail sales rose more than expected in September as households increased motor vehicle purchases and spent more at restaurants and bars, confirming expectations that economic growth accelerated in the third quarter.
But strong demand highlighted by Tuesday’s Commerce Department report raises the risk that the Federal Reserve will raise interest rates in December. The data followed stronger-than-expected job growth and consumer price readings in September.
“It looks like the economy is getting used to the new normal of interest rates lasting longer because buyers aren’t taking a break, that’s for sure,” said Christopher Rupkey, chief economist at FWDBONDS. “Fed officials have another rate hike on their forecast list this year, and they will need to take advantage if economic data continues to positively surprise economists.”
Retail sales rose 0.7% last month. Data for August was revised upward to show a sales increase of 0.8% instead of 0.6% as previously reported. Economists polled by Portal had forecast retail sales rising 0.3% in September. Retail sales are predominantly goods that are not adjusted for inflation.
They rose 3.8% year-on-year in September. Despite demonstrated resilience, consumer headwinds are increasing. Higher borrowing costs as the Federal Reserve fights inflation have pushed credit card delinquencies to an 11-year high.
Consumers are increasingly relying on credit cards to finance purchases. Millions of Americans resumed student loan payments in October, which economists estimate amounted to about $70 billion, or about 0.3% of disposable personal income.
Still, consumer spending continues to be driven by a tight labor market, with the economy adding 336,000 jobs in September. Excess savings accumulated during the COVID-19 pandemic remain higher than previously estimated.
US stocks opened lower. The dollar rose against a basket of currencies. US Treasury bond prices fell.
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CARS GO AHEAD
Sales at car dealerships rose 1.0% last month after rising 0.4% in August. Gas station revenue increased 0.9%, reflecting higher gas station prices. Excluding motor vehicles and gas stations, retail sales rose a whopping 0.6%.
Online sales rose 1.1% after rising 0.4% in August. Those sales are expected to rise further in October after Amazon (AMZN.O) held another Prime Day promotion this month in which other retailers offered similar deals.
Sales at restaurants and drinking establishments rose 0.9% after rising 0.4% in August. Economists view eating out as a key indicator of household finances. There were also sales increases in health and personal care, general merchandise and food and beverage stores.
But consumers cut back on purchases of other big-ticket items such as electronics and appliances, causing sales at those stores to fall 0.8%. Revenue at building materials, garden equipment and accessories retailers fell 0.2%. Furniture store sales remained unchanged. Sales at clothing stores fell 0.8%.
Income from sporting goods, hobby, musical instrument and book stores remained unchanged.
Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.6% in September. August data was revised upward to show that so-called core retail sales rose 0.2% instead of 0.1% as previously reported.
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Core retail sales correspond most closely to the consumer spending component of GDP. Consumer spending is expected to have accelerated in the third quarter, thanks in part to a jump in July. Spending on services remains solid, which should also boost overall consumption.
Gross domestic product growth estimates for the third quarter are currently 5.1% annualized.
The economy grew at a pace of 2.1% in the April-June quarter and continues to advance despite the Fed raising its federal funds rate by 525 basis points since March 2022 to the current range of 5.25% to 5.50% has.
“This report confirms that there was more momentum in consumer spending in the third quarter and that underlying strength could continue to strengthen in the fourth quarter,” said Ellen Zentner, chief economist at Morgan Stanley in New York.
Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci
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