November 15, 2023 | 09:21
U.S. Retail Sales Slip in October
Much as BMO Economics anticipated, consumer spending growth is poised to cool in the fourth quarter. U.S. retail sales declined 0.1% month-on-month in October, a significant deterioration from the upwardly revised surge of 0.9% in September. Weaker job and wage growth, falling excess savings and the bite of higher interest rates are the primary reasons for the decline and are now headwinds to consumer spending in the all-important holiday season. Receipts in seven of 13 major categories declined with the biggest drops in furniture stores (-2.0%), motor vehicles and parts (-1.0%) and sporting goods stores (-0.8%). These are all considered discretionary categories and the declines suggest consumers might be shifting their spending to essentials amid still-high inflation. The largest gains were in grocery stores (+0.6%), electronics (+0.6%) and restaurants and bars (+0.3% but down from a robust 1.6% in September). The monthly declines pushed the year-on-year growth rate down to 2.5% from 4.1% in September. So-called control retail sales – which exclude restaurants, motor vehicles, gas stations and building materials stores and is used to calculate consumer spending in the GDP report – rose 0.2% in October, a significant moderation from the 0.7% gain in September.
Bottom Line: The decline in retail sales in October following strong growth in September suggests the U.S consumer might finally be buckling amid higher borrowing costs, elevated prices and slowing job and wage growth. We expect real consumer spending to moderate to a seasonally adjusted annual rate of 1.9% in the fourth quarter following a solid-but-unsustainable 4.0% pace in the third quarter.