US retail sales fell in October for the first time in seven months

US retail sales fell in October for the first time in seven months

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Retail sales fell 0.1% in October, the first monthly decline since March.

Washington, DC

Americans reduced their retail spending in October for the first time since March, with interest rates reaching their highest level in 22 years.

The Commerce Department reported Wednesday that retail sales, adjusted for seasonality but not inflation, fell 0.1% in October from the previous month. While this was the first monthly decline since March, it was a smaller decline than economists had expected.

The decline in retail spending in October was likely an early sign of a slowing economy as U.S. consumers are pressured by higher borrowing costs and continue to accumulate credit card debt.

A decline in sales of some big-ticket items helped drive the decline in October. Car sales fell by 1.1% in October compared to September, while furniture sales fell by 2% during the same period. Durable goods—or products that are meant to last for at least three years—are often purchased using credit.

Americans continue to spend at a healthy pace at restaurants and supermarkets, rising 0.3% and 0.7% in October, respectively.

The Federal Reserve has raised interest rates 11 times since March 2022 in an attempt to combat high inflation, which has slowed significantly from its peak in four decades last year.

After a summer of strong economic strength, Federal Reserve Chairman Jerome Powell and other central bank officials said the economy will need to cool further to ensure inflation is on track toward the 2% target.

Wednesday’s retail sales report bodes well for the Fed, as it shows spending is neither accelerating nor remaining strong. The decline was also modest, so there is still no sign of severe economic weakness.

“The October retail sales report confirms our view that slowing income growth, depletion of excess savings and tight credit conditions are all limiting consumers’ willingness and ability to spend,” Cathy Bosjancic, chief economist at Nationwide, said in a note on Wednesday.

“Combined with an encouraging October CPI report and a healthy slowdown in employment growth, a decline in consumer spending after a summer spending spree will give the Fed comfort that its restrictive monetary policy stance is reducing inflationary pressures,” she added.

A single month’s data does not constitute a trend, but economists widely expect the U.S. economy to cool further in the final months of the year, including inflation, under the weight of several economic headwinds.

The Consumer Price Index rose 3.2% in October from a year earlier, down from the 3.7% annual rise in September, marking the weakest pace since March 2021, the Bureau of Labor Statistics reported Tuesday.

A separate report released on Wednesday showed that wholesale inflation fell in October, reversing a three-month trend that pushed the cost of energy into suppliers’ prices.

“Progress is continuing, although we still have a way to go” to return inflation to its target, Chicago Fed President Austan Goolsbee said at an event hosted by the Detroit Economic Club on Tuesday.

In addition to important inflation data, Fed officials also pay close attention to numbers measuring economic, labor market and housing growth. This is because the data helps paint a picture of some of the potential sources of inflation.

The US economy expanded at a blistering 4.9% annual rate in the third quarter, driven largely by consumer spending. US employers added 150,000 jobs last month, after adding 297,000 jobs in September, reflecting an ongoing slowdown in the labor market.

“With goods inflation already low and non-housing services inflation slow to adjust, the key to further progress over the next few quarters will be what happens to housing inflation,” Goolsby said.

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