U.S. Retail Sales Growth Slows, Consumer Sentiment Sags Amid Job Market Concerns
U.S. retail sales growth has cooled, indicating consumer fatigue due to rising prices caused by tariffs. Despite this moderation, economists predict solid economic growth in the third quarter. The slowdown in sales, as reported by the Commerce Department, follows a period of strong gains and marks a weak transition to the fourth quarter. Economists attribute this to a sluggish labor market, with an unemployment rate at a four-year high, making consumers more cautious about their purchases.
A survey by the Conference Board further supports this, showing a decline in consumer confidence to a seven-month low in November. Fewer households are planning to buy big-ticket items like motor vehicles, houses, and other expensive goods. The survey also noted a decrease in vacation plans. President Donald Trump's tariffs on imports have contributed to higher prices for everyday items, including food.
Ben Ayers, a senior economist at Nationwide, comments, 'Spending has remained stable despite worsening survey results, but many consumers may have reached their spending limits due to rising prices and labor market concerns, at least in the short term.'
Retail sales rose by 0.2% in September, following a 0.6% gain in August, according to the Commerce Department's Census Bureau. Economists had expected a 0.4% increase. Year-over-year, retail sales increased by 4.3%. The report was delayed by the 43-day U.S. government shutdown.
Part of the sales increase can be attributed to higher prices, with receipts at service stations rising by 2.0%. Sales had accelerated in previous months due to consumers rushing to buy electric vehicles before the end of September's tax credits.
Sales at auto dealerships decreased by 0.3%, while furniture store sales increased by 0.6%. Building material and garden equipment retailers and suppliers saw a 0.2% gain. However, clothing retailers experienced a 0.7% drop in sales, and electronics and appliance outlets saw a 0.5% decrease. Online store sales also declined by 0.7%.
Consumers reduced spending on hobbies and sporting goods but increased dining out and visiting bars. Sales at food services and drinking places, the only services component in the report, increased by 0.7% after a 1.0% surge in August.
Some economists argue that the strength in discretionary spending suggests that it remains robust. Others highlight a K-shaped economy, where higher-income households are driving spending, while middle-income and lower-income consumers struggle. Despite a rebound in job growth in September, the labor market is weakening, with the unemployment rate rising to 4.4%.
The Conference Board's consumer confidence index fell to 88.7 this month, the lowest since April, from 95.5 in October, due to labor market concerns. Confidence deteriorated across all income groups and political affiliations, with the sharpest drop among independent consumers.
Economists note that while consumer confidence and spending have a weak correlation, worsening labor market perceptions suggest a likely pullback in consumption. The Conference Board's labor market differential, reflecting job availability, fell to 9.7 from 10.3, aligning with the Labor Department's unemployment rate.
Elizabeth Renter, a senior economist at NerdWallet, warns, 'Household financial conditions are more fragile now than a few years ago, so fears about the future economy may be well-founded.'
Core retail sales, excluding automobiles, gasoline, building materials, and food services, fell by 0.1% in September after a revised 0.6% increase in August. These core sales closely align with the consumer spending component of GDP. Initially reported as a 0.7% increase in August, the revised figure did not change economists' expectations for consumer spending in the third quarter.
The Atlanta Federal Reserve estimates a 4.0% annualized GDP growth rate for the last quarter. The government will release the delayed third-quarter GDP estimate on December 23, with the economy growing at a 3.8% pace in the April-June quarter.
Stocks on Wall Street rose, the dollar weakened, and U.S. Treasury yields fell. The Conference Board survey also indicated higher inflation expectations over the next 12 months.
A separate report from the BLS on Tuesday showed a 0.3% rebound in the Producer Price Index for final demand in September, driven by a 3.5% energy goods cost increase and a 1.1% food increase. This followed an August 0.1% drop. The PPI increased by 2.7% in the 12 months through September.
Airline fares rose significantly, while hotel and motel room prices and portfolio management fees fell. These components contribute to the Personal Consumption Expenditures Price Indexes, which the Federal Reserve tracks for its 2% inflation target. Economists estimate a 0.2% September increase in the PCE Price Index, excluding food and energy, keeping the annual core PCE inflation at 2.9%. The odds of an interest rate cut by the U.S. central bank in December have increased, despite some Fed officials' inflation concerns.
