US Retail Sales Exceed Expectations, Boosting Q3 GDP Growth Outlook
Positive Retail Sales Data Points to Accelerated Economic Growth
In September, U.S. retail sales surpassed expectations, driven by increased purchases of motor vehicles and higher spending at restaurants and bars. This robust demand suggests that economic growth in the third quarter has gained momentum. However, it also raises concerns about the possibility of the Federal Reserve raising interest rates in December. These retail sales figures follow stronger-than-expected employment growth and consumer price readings in September.
Consumers Adapt to Higher Interest Rates and Continue Spending
Despite the new normal of higher interest rates, consumers are not taking a break from spending. Christopher Rupkey, chief economist at FWDBONDS, commented, “The economy looks like it is getting used to the new normal of interest rates being higher for longer because shoppers are not taking a break that’s for sure.” The Federal Reserve is likely to implement another rate hike this year if the economic data continues to outperform economists’ expectations.
Retail Sales Rise 0.7% in September
Retail sales increased by 0.7% in September, surpassing the forecasted 0.3% rise. August’s sales were also revised higher to show an advance of 0.8% instead of the initially reported 0.6%. These sales figures do not account for inflation and primarily consist of goods. Year-on-year, retail sales rose by 3.8% in September.
Headwinds for Consumers
While retail sales show resilience, consumers are facing headwinds. Higher borrowing costs, driven by the U.S. central bank’s efforts to combat inflation, have led to an 11-year high in credit card delinquencies. Credit cards have become increasingly relied upon for funding purchases, and the resumption of student loan payments in October has further impacted consumers’ disposable income.
Tight Labor Market and Accumulated Savings Drive Consumer Spending
Despite these challenges, consumer spending continues to be supported by a tight labor market. In September, the economy created 336,000 jobs. Additionally, excess savings accumulated during the COVID-19 pandemic are higher than previously estimated, providing further fuel for consumer spending.
Auto Sales Lead the Way
Auto dealerships experienced a 1.0% increase in sales last month, following a 0.4% rise in August. Gasoline stations also saw a 0.9% climb in receipts, reflecting higher pump prices. Excluding motor vehicles and gasoline stations, retail sales rose a solid 0.6%. Online sales experienced a significant jump of 1.1%, and food services and drinking places saw a 0.9% increase in sales. However, there were declines in sales of electronics and appliances, as well as in furniture and clothing stores.
Core Retail Sales and GDP Growth Outlook
When excluding automobiles, gasoline, building materials, and food services, core retail sales rose by 0.6% in September. These figures closely align with the consumer spending component of GDP. The outlook for GDP growth in the third quarter is currently as high as a 5.1% annualized rate. Despite the Federal Reserve’s interest rate hikes, the economy continues to forge ahead, bolstered by strong consumer spending.
Disclaimer: This article is for informational purposes only and does not constitute financial advice.
