U.S. Retail Sales Report for October

WASHINGTON (Reuters) – U.S. retail sales increased slightly more than expected in October, but underlying momentum in consumer spending appeared to slow at the start of the fourth quarter.

Retail sales rose 0.4% last month after an upwardly revised 0.8% advance in September, according to the Commerce Department's Census Bureau on Friday.

Economists polled by Reuters had forecast retail sales, mostly goods and not adjusted for inflation, climbing 0.3% after a previously reported 0.4% gain in September. Estimates ranged from no change to an increase of 0.6%. Robust consumer spending helped the economy maintain its strong pace of growth last quarter.

Consumption is largely underpinned by low layoffs, with additional support from strong household balance sheets due to a stock market rally and high home prices. Household savings also remain lofty.

Concerns exist that growth is mainly driven by middle- and upper-income households, which have more consumption flexibility. However, Bank of America card data shows spending is resilient across income groups.

> “We do not see signs of increased reliance on credit cards in any income cohort,” said Aditya Bhave, a U.S. economist at Bank of America Securities. “However, we note that higher-income households appear to be outperforming in certain service sectors such as airlines, lodging, entertainment, and cruises.”

Retail sales excluding automobiles, gasoline, building materials, and food services dipped 0.1% last month after an upwardly revised 1.2% gain in September. These core retail sales, closely corresponding with the consumer spending component of gross domestic product, were previously reported to have jumped 0.7% in September.

Consumer spending grew at a 3.7% annualized rate in the third quarter, accounting for most of the economy's 2.8% pace of expansion during that period.

The Federal Reserve last week cut its benchmark overnight interest rate by 25 basis points to the 4.50%-4.75% range.

Though the U.S. central bank is widely expected to deliver a third rate cut in December, some economists caution that it could be a close call due to lack of progress in lowering inflation back to its 2% target.

Fed Chair Jerome Powell stated that “the economy is not sending any signals that we need to be in a hurry to lower rates.” The central bank began its policy easing cycle with an unusually large half-percentage-point rate cut in September, its first reduction in borrowing costs since 2020.

The Fed hiked rates by 525 basis points in 2022 and 2023 to tame inflation.