US shoppers spent more in October, showing continued resilience amid still-high inflation and an early start to the holiday shopping season.
US retail sales rose 1.3% in October, the Census Bureau reported Wednesday.
It’s the biggest monthly gain since February and better than 1% economists had expected. consumer spending was flat in September.
Retail sales, which are not adjusted for inflation, rose 8.3% for the 12 months to October, down slightly from September’s 8.6%.
Consumer spending increased on items such as gasoline, groceries, furniture and cars, but shoppers reduced spending at electronics and appliance stores, sporting goods retailers and department stores, according to the report.
For most of the year, despite short-term spikes in gasoline prices and decades-high inflation, consumer spending remained robust.
The October Retail Sales Report shows the repressed desire to shop that was caused by the pandemic remains strong, said Eugenio Aleman, chief economist at Raymond James.
“The fact that they were limited in their consumption alternatives before, for nearly three years, has a big impact on consumers’ decision to keep spending,” Aleman said.
But to fund this spending, which began to focus more on experiences than on goods, consumers relied more on debt. The New York Federal Reserve announced on Tuesday that consumer credit card balances rose 15% year over year in the third quarter, the highest in more than 20 years.
But as the central bank raises interest rates in its effort to lower stubbornly high inflation, which is weighing on consumers, said Gregory Daco, chief economist for EY Parthenon. Consumer confidence has plummeted in recent months.
“It is becoming increasingly clear that household budgets are being strained by persistently high inflation, forcing many to dip into their savings and use credit to finance their spending,” he wrote on Wednesday. “This is by no means sustainable, especially for families at the lower to middle end of the income scale. Therefore, while overall excess savings remain elevated at around $1.5 trillion, we expect we will soon see a noticeable pullback in consumer spending under the weight of inflation and high interest rates.
Still, the strength in consumer spending, while beneficial to the economy, could present challenges for the Fed.
“Even after adjusting for inflation, consumers are spending more,” Wells Fargo economists Tim Quinlan and Shannon Seery wrote in a note. “It’s tempting to celebrate consumer ‘resilience’, but resilient spending doesn’t incentivize businesses to forgo price hikes, making it harder for policymakers to control inflation.”
The October retail sales report comes amid a slew of consumer-related economic data and retailer earnings reports ahead of the holiday shopping season.
Two key indicators of inflation, the consumer price index and the producer price index, both showed that price increases have slowed.
“The inflation relief that consumers received in October, which we saw in last week’s CPI report, extended to this morning’s retail sales figures,” Scott Brave said. , head of economic analysis at Morning Consult.
While inflation appears to have peaked, consumer behaviors have changed, Claire Tassin, retail and e-commerce analyst at Morning Consult, said in an interview Wednesday.
“Everybody’s been more price-sensitive lately,” she told CNN Business chief business correspondent Christine Romans. “People are definitely changing the stores they shop at, so I can absolutely see more affluent shoppers shopping at Walmart often, especially…to access some of those lower prices than maybe others. stores where they would traditionally shop.”
On Tuesday, Walmart reported that its U.S. sales rose 8.2% in the latest quarter from a year earlier. The discount retailer noted that it was making “strong grocery share gains,” including among high-income households.
However, earlier on Wednesday, Target said its profits fell 52% last quarter and revenue rose only 3.4% as consumers began to feel the heat of inflation. The retailer has warned of a slow holiday season ahead as shoppers wait for bargains.
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