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 cut their retail spending in October for the first time since March, with interest rates at a 22-year high.

Retail sales, which are adjusted for seasonality but not inflation, fell 0.1% in October from a month earlier, the Commerce Department reported on Wednesday. Although it is the first monthly decline since March, it was a smaller decline than economists had expected.

October’s drop in retail spending is potentially an early sign of a slowing economy as US consumers are squeezed by higher borrowing costs and continue to pile up credit card debt.

A drop in sales of some big-ticket items helped drive October’s decline. Car sales fell 1.1% in October compared to September, while furniture sales fell 2% in the same period. Durable goods – or products intended to last at least three years – are often bought on credit.

Americans still continued to spend at a decent pace at restaurants and supermarkets, rising 0.3% and 0.7%, respectively, in October.

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

After a summer of robust economic strength, Fed Chairman Jerome Powell and other central bank officials have said the economy will need to cool further to ensure inflation is moving toward the 2% target.

Wednesday’s retail sales report bodes well for the Fed as it shows that spending is not accelerating again or remaining stubbornly strong. The decline was also modest, so there are no signs of serious economic weakness yet.

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“October’s retail sales report underscores our view that slowing income growth, depleted excess savings and restrictive credit conditions are limiting consumers’ willingness and ability to spend,” Kathy Bostjancic, chief economist at Nationwide, said in a note Wednesday.

“Along with the encouraging October CPI report and a healthy slowdown in employment growth, the pullback in consumer spending after the summer spending spree will give the Federal Reserve comfort that its tight monetary policy stance is reducing inflationary pressures,” she added.

One month’s data is not a trend, but economists widely expect the US 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 September’s annual increase of 3.7%, marking the weakest pace since March 2021, the Bureau of Labor Statistics reported Tuesday.

A separate report released on Wednesday showed that wholesale inflation cooled in October, reversing a three-month trend that had seen energy costs push up supplier prices.

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

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

The US economy grew at a surging 4.9% annual rate in the third quarter, driven mainly by consumer spending. US employers added 150,000 jobs last month after adding a solid 297,000 in September, reflecting the continued cooling of the labor market.

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