US retail sales beat expectations in boost to third-quarter GDP growth expectations

WASHINGTON – Retail sales in the United States increased more than expected in September as households stepped up purchases of motor vehicles and spent more at restaurants and bars, cementing expectations that economic growth accelerated in the third quarter.

Strong demand illustrated by the report from the Commerce Department on Tuesday, however, raises the risk of the US Federal Reserve hiking interest rates in December.

The data followed on the heels of stronger-than-expected employment growth and consumer price readings in September.

“The economy looks like it is getting used to the new normal of interest rates being higher for longer because shoppers are not taking a break – that’s for sure,” said Mr Christopher Rupkey, chief economist at FwdBonds. “Fed officials have another rate hike this year up on their forecast board, and they will need to use it, if the economic data continues to surprise economists on the upside.”

Retail sales rose 0.7 per cent in September. Data for August was revised higher to show sales advancing 0.8 per cent

instead of 0.6 per cent as previously reported.

Economists polled by Reuters had forecast retail sales rising 0.3 per cent in September. Retail sales are mostly goods and are not adjusted for inflation.

They rose 3.8 per cent year on year in September. Despite the show of resilience, headwinds are rising for consumers. Higher borrowing costs as the US central bank tackles inflation have pushed credit card delinquencies to an 11-year high.

Consumers are increasingly relying on credit cards to fund purchases. Millions of Americans resumed payments on student loans in October, which economists estimated was equal to roughly US$70 billion (S$96 billion), or around 0.3 per cent of disposable personal income.

Nevertheless, consumer spending continues to be driven by a tight labour market, with the economy creating 336,000 jobs in September. Excess savings accumulated during the Covid-19 pandemic remain higher than previously estimated.

US stocks opened lower. The dollar rose against a basket of currencies. US Treasury prices fell.

Autos lead the way

Sales at car dealerships accelerated 1 per cent in September after rising 0.4 per cent in August.

Receipts at petrol stations climbed 0.9 per cent, reflecting higher pump prices. Excluding motor vehicles and petrol stations, retail sales rose a solid 0.6 per cent.

Online sales jumped 1.1 per cent after advancing 0.4 per cent in August.

These sales are likely to rise further in October after Amazon held another Prime Day promotion in the month, which saw other retailers offering similar deals.

Sales at food services and drinking places increased 0.9 per cent after rising 0.4 per cent in August.

Economists view dining out as a key indicator of household finances. There were also increases in sales at health and personal care, general merchandise as well as food and beverage stores.

But consumers cut back on purchases of other big-ticket items like electronics and appliances, with sales at these outlets falling 0.8 per cent.

Receipts at building material, garden equipment and supplies dealers dropped 0.2 per cent. Furniture store sales were unchanged. Sales at clothing stores declined 0.8 per cent.

Receipts at sporting goods, hobby, musical instrument and book stores were unchanged.

Excluding cars, petrol, building materials and food services, retail sales rose 0.6 per cent in September.

Data for August was revised up to show these so-called core retail sales gaining 0.2 per cent instead of 0.1 per cent as previously reported.

Core retail sales correspond most closely with the consumer spending component of gross domestic product (GDP).

Consumer spending is expected to have accelerated in the third quarter, also thanks to a surge in July.

Spending on services remains solid, which should also lift overall consumption.

GDP growth estimates for the third quarter are currently as high as a 5.1 per cent annualised rate.

The economy grew at a 2.1 per cent pace in the April to June quarter, and continues to push ahead despite the Fed hiking its benchmark overnight interest rate by 525 basis points since March 2022 to the current 5.25 per cent to 5.5 per cent range.

“This report confirms that there was more momentum in consumer spending throughout the third quarter and more underlying strength that may carry into the fourth quarter,” said Ms Ellen Zentner, chief economist at Morgan Stanley in New York. REUTERS