October Retail Sales Rise 0.4%, Show Resilience Despite Slowing Momentum

October Retail Sales Show Resilience Despite Slower Momentum

Retail sales in the United States climbed 0.4% in October, according to the Census Bureau’s Friday report, reflecting a sustained willingness to spend despite signs of deceleration in consumer activity. Sales reached $718.9 billion, a 2.8% year-over-year increase. The three-month average through October rose 2.3% compared to the same period in 2023, underscoring the robustness of consumer spending in driving economic growth.

Key Sectors and Underlying Trends

Retail trade sales were up 0.4% month-over-month and 2.6% from a year ago. Nonstore retailers led the charge with a 7% annual increase, while food services and drinking places reported a 4.3% gain year-on-year. However, core retail sales, which exclude automobiles, gasoline, building materials, and food services, slipped 0.1% after a revised 1.2% surge in September.

Economists had anticipated a 0.3% increase in overall retail sales, making October’s performance marginally stronger than expected. Yet, the data points to waning momentum, with core retail sales revealing a softer trajectory for consumer spending, a key driver of GDP growth.

Consumer Spending and Economic Impacts

Consumer spending rose at a robust 3.7% annualized rate in Q3, contributing significantly to the economy’s 2.8% expansion. This strength is underpinned by historically low layoffs, healthy household balance sheets bolstered by a stock market rally, and elevated home prices. Additionally, Bank of America data suggests spending resilience across income groups, with higher-income households leading in discretionary sectors like travel and entertainment.

Concerns persist that growth may be unevenly distributed, with middle- and upper-income households disproportionately contributing to consumption. Despite these disparities, credit card reliance has not surged, indicating stability in spending patterns.

Federal Reserve Policy and Economic Outlook

The Federal Reserve’s recent 25-basis-point rate cut to 4.50%-4.75% signals continued efforts to support the economy amid persistent inflation concerns. While another rate cut is anticipated in December, Chair Jerome Powell emphasized caution, suggesting that inflationary pressures remain a critical factor in policy decisions.

Short-Term Market Forecast

While retail sales remain a pillar of economic resilience, the October data hints at a cooling pace of consumer spending heading into Q4. Traders should monitor inflation indicators and upcoming Fed policy moves, which could shape retail and broader economic trends. The near-term outlook remains cautiously bullish, supported by strong household fundamentals, but potential headwinds could temper gains.jame