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Retail sales rose a moderate 0.4% in September, and a stronger 0.7% if you exclude motor vehicles and gasoline. Those so-called core sales have risen at a moderate-to-strong pace in each of the past five months, indicating the resilience of consumer spending this year. Clothing, miscellaneous, and health and personal care stores also enjoyed a strong increase. E-commerce sales gained a smallish 0.4% after a strong August. Spending at restaurants surged 1.0%, their largest monthly gain in nearly a year. Consumer spending on eating out tends to reflect whether consumers are feeling pinched or not, so the pickup could indicate further gains in overall spending.
A few other store types showed weakness. Sales declined for the second month at electronics (-3.3%) and furniture (-1.4%) stores. The large, consecutive monthly declines at electronics stores are a puzzle.
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Motor vehicle sales were unchanged in September. Car purchases have downshifted this year, as much of the pent-up demand for new cars and trucks after the pandemic has been met, causing inventories to rise. High sticker prices may also be hurting sales.
Consumer spending on services excluding restaurants rose a moderate 0.4% in August, the latest month for which data are available. While spending on services is still rising at a good pace, it is below the strong average monthly increases of 0.7% logged from last September through March 2024, and the rate of monthly increase has been gradually decelerating. However, this more moderate pace is not likely to weaken further for now.
A gradually cooling labor market is likely causing consumers to think about boosting their savings. However, don’t expect any sudden pickup in the savings rate. That only occurs when unemployment rises sharply and consumers start worrying about losing their jobs. But savings rates have been lower than the historical norm and may begin to rise slowly, which would cut into the cash available to support future retail spending. Still-high interest rates on consumer loans will likely continue to dampen lower-income households’ spending power, too.
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