Quiver Quantitative - In October, U.S. retail sales displayed a slight decline, down by 0.1%, hinting at consumer prudence ahead of the holiday season but still showing a measure of economic resilience. The Commerce Department noted that despite the decrease, there were revisions upward for prior months, and when excluding autos and gasoline, sales actually saw a slight increase. This mixed picture was painted by declines across seven out of 13 categories, with furniture and automobiles leading the fall, while personal-care and grocery stores experienced growth.
The "control group" segment of retail sales, a component of GDP calculations that excludes several categories like food services and gasoline stations, rose by 0.2%. This suggests a positive onset for the fourth quarter, sustaining momentum from a robust previous period. The enduring strength of the U.S. consumer has repeatedly exceeded forecasts, leading to revised recession expectations. However, the sustainability of consumer spending is under scrutiny amidst a softening labor market, persistent inflation, and escalating borrowing costs, which pose a question on the continuity of this consumer-led economic drive.
Recent data indicates a cooling in both consumer and producer prices during October, a trend reflecting potentially diminishing inflationary pressures. This deceleration aligns with the Federal Reserve's strategy, which seeks a moderation in consumer spending to confirm a steady path toward inflation reduction. Additionally, the decrease in core goods prices for a fifth consecutive month could signify that the drop in retail sales may be attributable to falling prices rather than a reduction in purchase volume.
Looking forward, several factors such as higher credit card rates, diminishing savings, and the looming return of student loan repayments could restrict spending as the holiday season approaches. Retail heavyweights like Target (NYSE:TGT). and Walmart (NYSE:WMT) are observing these consumer challenges, with Target reporting a consecutive quarterly sales dip yet maintaining an outlook of "great resiliency." With the retail sales report focusing on merchandise and not services, a comprehensive view of real spending on goods and services for October awaits further data release later in the month.
This article was originally published on Quiver Quantitative