Retail sales in the U.S. experienced a stronger-than-expected increase of 0.7% in September. This growth was primarily driven by higher demand at automotive dealerships and internet retailers. Economists had predicted a more modest 0.2% increase in sales. Retail sales are a key indicator of consumer spending and offer insights into the overall health of the economy.
While the September sales figures indicate that households still have significant purchasing power, it's important to note that this month falls between the busy back-to-school and holiday shopping seasons. As a result, it may not provide a complete picture of consumer behavior.
Breaking down the data, automotive dealers saw a 1% increase in sales, contributing to the overall headline number. Auto sales account for approximately 20% of all retail sales. Sales at gas stations also rose by nearly 1%, but this primarily reflects higher gas prices, which is not ideal for households.
When excluding car dealers and gas stations, retail sales still experienced a solid growth rate of 0.6%, providing a better indication of consumer demand. Internet retailers continued their strong performance, with a 1.1% increase in sales. Bars and restaurants also saw a notable increase of 0.9%, which suggests a healthy economy and consumer confidence.
On the flip side, sales declined at big-box electronics stores, clothing stores, and home centers such as Home Depot and Lowe's. In August, sales were also revised up to show a 0.8% increase instead of the initially reported 0.6% increase.
Overall, the retail sales report suggests that the U.S. economy continues to expand at a solid pace, and may not be decelerating as much as the Federal Reserve would like to manage inflation. Consumer spending remains healthy due to rising wages, a strong job market, and incomes that are now growing faster than inflation. However, higher interest rates are starting to impact households and businesses, which could result in a slowdown in the economy and potentially softer retail spending in the coming months.
In response to this news, the Dow Jones Industrial Average and S&P 500 were expected to open lower in Tuesday's trades.