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The Commerce Department announced on Friday that retail sales increased 0.3% in October vs. 0.2% expected, driven by increases in vehicle purchases and gasoline prices. The 0.3% gain is in contrast the -0.3% drop seen the month prior, the first decline in seven months.

Key Takeaways

• Retail sales came in at 0.3% in October vs. 0.2% expected and compared to -0.3% in September.
• Sales grew partly due to increased gas prices and higher rates of vehicle sales.
• Retail sales rose 3.1% overall in the 12 months through October.

Retail sales rose above expectations last month, although consumers reduced spending on big-ticket household items and clothing. This could impact expectations of strong consumer spending during the upcoming holiday season. The gain reverses the drop seen in September which was the first decline in sales in seven months. Sales were expected to rise 0.2% last month, and annually, sales rose 3.1% in October.

Auto sales rose 0.5% in October following a 1.3% drop in September. Service station receipts rose 1.1% after falling -0.1% the month before, a reflection of higher gas prices. Online and mail-order retail sales grew 0.9% after a 0.2% rise in September. Sales at electronic and appliance stores fell -0.4%, receipts at building materials stores fell -0.5%, and clothing sales fell -1.0%. Furniture stores saw the largest decline in sales since December 2018 with a -0.9% drop. Sales at restaurants and bars saw a yearly low, falling -0.3%, and sales at hobby, musical instruments, and book stores fell -0.8%.    

Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3% last month. The latest report reveals that these core retail sales dropped 0.1% in September, lower than the initially reported figure which indicated no change. Core retail sales is the measure that most closely ties in with the consumer spending component of gross domestic product (GDP) in the US.

Inflationary Pressure Gaining Strength?

The increase in core sales paints a picture of inflationary pressure finding a foundation and beginning to solidify, lending credence to the recent Federal Reserve statements indicating that no further rate cuts are due in the near future. This viewpoint is bolstered by reports of strong October job growth and an uptick in service sector activity. The Fed cut interest rates a third time this year in October before signaling a pause in cuts, although adding that no rate hikes could be expected in the near term either.

Recent financial reports, coupled with a slow deescalation in trade tensions with China, have offset mounting fears of a recession that could end the record-breaking period of economic expansion currently underway in the US. Consumer spending, which accounts for the majority of US economic activity, rose 2.9% in Q3, driven by a strong labor market.

Market Reaction

Gold prices have seen little change following the release of the news, ticking slightly upward. Spot gold last traded at $1,466.64/oz, up 0.34% with a high of $1,473.95/oz and a low of $1,462.78/oz. While retail sales are up, the Empire State manufacturing index came in below expectations, falling from 4.0 in October to 2.9 in November. Today also saw the release of data reports on import and export prices, trade inventories, and industrial production.