Retail sales rose 1.3% in October as consumers continued to spend despite inflation

Minneapolis
CNN Business
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US shoppers spent more in October, showing continued resilience amid soaring inflation and an early start to the holiday shopping season.

US retail sales It rose 1.3% in October, the Census Bureau said Wednesday.

This is the biggest monthly gain since February and the 1% better than economists expected. consumer expenses It was flat in September.

Retail sales, which are not adjusted for inflation, rose 8.3% for the 12 months ending in October, down slightly from 8.6% in September.

Consumer spending increased on items such as gas, groceries, furniture and automobiles, but shoppers fell behind spending at electronics and hardware stores, sporting goods retailers and department stores, according to the report.

For most of the year, despite short-term hikes in gas prices and decades-high inflation, consumer spending remained strong.

October retail sales report Shows pent-up desire to shop that was The pandemic is still going strong, said Eugenio Aleman, chief economist at Raymond James.

“The fact that they were limited in their consumer alternatives before, for nearly three years, has a significant impact on consumers’ decisions to continue spending,” Alleman said.

But to fund that spending, which is starting to move more toward experiences versus commodities, so has consumers Lean more on debt. The New York Federal Reserve reported Tuesday that consumer credit card balances grew 15% year-over-year in the third quarter — the highest in more than 20 years.

But while the central bank raises interest rates as part of its efforts to lower prices Stubbornly high inflation, which negatively affects consumers, said Gregory Daco, chief economist at EY Parthenon. Consumer confidence has decreased in recent months.

“It is becoming increasingly clear that household budgets are being drained by persistently high inflation, forcing many to dip into their savings and use credit to fund expenses,” he wrote on Wednesday. “This is by no means sustainable, particularly for families on the lower-to-middle end of the income spectrum. Hence, while overall excess savings is still high around $1.5 trillion, we expect that we will soon see a significant downturn in Consumer spending activity under the weight of inflation and high interest rates.

However, the strength of consumer spending, while beneficial to the economy, could pose 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 is tempting to encourage consumer ‘resilience’, but the continued power of spending gives companies no incentive to forgo price increases, making the task of controlling inflation more difficult for policymakers.”

The retail sales report for October comes amid a slew of consumer-related economic data and retailers’ earnings reports ahead of the holiday shopping season.

Two main measures of inflation, consumer price index And the producer price index Both showed that the price hike was cooling down.

“The inflation easing consumers received in October that we saw in last week’s CPI report has spilled over into this morning’s retail sales figures,” said Scott Brave, Head of Economic Analytics at Morning Consult.

While inflation appears to have peaked, consumer behaviors have changed, said Claire Tassen, retail and e-commerce analyst for Morning Consult, during an interview Wednesday.

“Everyone’s been getting a lot more price sensitive lately,” Kristin Romans, chief trade correspondent for CNN Business, told CNN Business. “People definitely change the stores they shop at, so I can see wealthier shoppers shopping at Wal-Mart a lot, especially … to get to some of those lower prices than other stores they’ve traditionally shopped at.”

Tuesday, Wal-Mart reported that its sales in the United States have increased 8.2% fourth quarter from the previous year. The discount retailer noted that it was seeing “strong gains in grocery share,” including from higher-income households.

However, earlier on Wednesday, Target said its earnings fell 52% in the past quarter Revenue increased by only 3.4% Where consumers are starting to feel the heat of inflation. The retailer has warned of a slowdown in the holiday season as shoppers are hesitant to bargain.