US retail sales are soaring; fourth quarter GDP estimates increased

  • Retail sales increase by 1.3% in October
  • Core Retail Sales Up 0.7%; September sales revised upwards
  • Import prices fall for the fourth consecutive month
  • Manufacturing output increases by 0.1%; previous months revised downwards

WASHINGTON, Nov 16 (Reuters) – U.S. retail sales rose more-than-expected in October as households ramped up purchases of cars and a range of other goods, suggesting consumer spending picked up to begin with. of the fourth quarter, which could help support the economy.

Solid retail sales reported by the Commerce Department on Wednesday and signs of slowing inflation raised cautious optimism that the economy could avoid an expected recession next year or experience only a minor downturn.

While other data showed manufacturing output barely grew in October, corporate equipment production remained strong. Continued strength in consumer and business spending will keep the Federal Reserve on track to further tighten monetary policy, although falling inflation gives the US central bank room to scale back the magnitude of its interest rate hikes .

“This is not what the Fed wants to see, but it comes at a time when the inflation numbers are starting to improve,” said Eugenio Aleman, chief economist at Raymond James in St. Petersburg, Florida. “This will keep the Fed on guard and pledge to continue raising interest rates to slow economic activity.”

Retail sales rose 1.3% last month after remaining unchanged in September. Economists polled by Reuters had forecast sales to rise 1.0%. Sales increased 8.3% year over year in October.

Retail sales

Retail sales are mostly goods and are not adjusted for inflation. With inflation falling sharply in October, economists estimate that real retail sales rose 0.9% last month.

One-time tax rebates in California, which saw some families receive up to $1,050 in stimulus checks, likely helped buoy sales in October. Additionally, Amazon (AMZN.O) ran a second Prime Day promotion last month.

The broad increase in sales in October was led by motor vehicles, with receipts at auto dealerships rising 1.3%, reflecting significant improvements in offerings.

Sales were also boosted by rising petrol prices, with revenues at service stations up 4.1%. Online retail sales increased by 1.2%. Furniture store sales increased by 1.1%. Sales in food service and eating places, the only service category in the retail sales report, increased 1.6%.

But sales in electronics and appliance stores fell by 0.3%. Revenues in merchandising, sporting goods, hobby, musical instrument and bookshops also decreased. Clothing store sales remained flat.

The National Retail Federation expects holiday sales to grow between 6% and 8% this year. While that would be a step down from the 13.5% mark in 2021, it would be well above the 4.9% average over the past 10 years.

The upbeat outlook for holiday shopping was somewhat clouded by Wednesday’s Target Corp (TGT.N) forecast of a surprise drop in holiday quarter sales. The retailer blamed inflation and “dramatic changes” in consumer behavior for a drop in demand for everything from toys to home furnishings.

Wall Street stocks traded mostly lower as the dollar slid against a basket of currencies. US Treasury prices were broadly higher.

RESILIENT CONSUMERS

The massive savings accumulated during the COVID-19 pandemic and strong wage earnings in a tight job market have generally helped consumers bear higher prices and borrowing costs.

That support is expected to fade next year as tighter monetary policy dampens overall demand, weighing on the labor market and the economy. Low-income households are thought to have already run out of pandemic savings.

Households also go into debt to maintain spending. Data from the New York Fed on Monday showed total borrowing increased by $351 billion in the third quarter.

The growing debt burden could be a barrier to spending, especially among low-income households, although economists expect limited impact.

“It’s not the level of debt that matters to consumers, it’s the monthly payments needed to finance the debt,” said Ryan Sweet, chief economist at Oxford Economics in West Chester, Pennsylvania. “Debt service and financial bond ratios are still among the lowest since the 1980s, a testament to the soundness of household finances overall.”

The Fed raised its policy rate by 375 basis points this year from near zero to a range of 3.75% to 4.00% as it battles rampant inflation in what has become the hike cycle. fastest rates since the 80s.

Financial markets are betting that the US central bank will drop to a half-percentage point rate hike during its Dec. 13-14 policy meeting, according to the CME Group’s FedWatch Tool.

Those expectations were bolstered Wednesday by a separate Labor Department report that showed import prices fell for the fourth consecutive month in October.

Excluding autos, gasoline, building materials and food services, retail sales rose 0.7% last month. September data was revised upwards to show these so-called core retail sales rose 0.6% rather than 0.4% as previously reported.

Main retail sales

Core retail sales correspond more closely to the consumer spending component of gross domestic product. The Atlanta Fed raised its fourth-quarter GDP growth estimate to an annualized rate of 4.4% from a 4.0% pace.

The economy grew at a rate of 2.6% in the third quarter after contracting in the first half of the year.

But the manufacturing slowdown and inventory build-up could limit growth this quarter. Business inventories rose 0.4% in September, the smallest increase since April 2021, another Commerce Department report showed.

Company inventories

A separate Fed report showed manufacturing output gained 0.1% in October, with corporate equipment production rising 0.8%.

“We may be in for a ‘soft landing,’ after all,” said Paul Ashworth, chief North American economist at Capital Economics.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Andrea Ricci and Paul Simao

Our standards: the Thomson Reuters Trust Principles.

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