Retail sales rose 1.3% in October as consumers continued to spend despite inflation

CNN Business

US shoppers spent more in October, showing continued resilience amid persistently high inflation and an early start to the holiday shopping season.

US retail It rose 1.3% in October, the Census Bureau reported Wednesday.

That’s the biggest monthly gain since February and better than the 1% economists had expected. Consumer spending was right in September.

Retail sales, not adjusted for inflation, rose 8.3% in the 12 months to October, down from 8.6% in September.

Consumer spending increased on items such as gas, groceries, furniture and automobiles, but shoppers pulled back spending at electronics and appliance stores, sporting goods retailers and department stores, according to the report.

Despite short-term spikes in gas prices and decades of high inflation for much of the year, consumer spending remained strong.

October retail sales report indicates a desire to shop Eugenio Aleman, chief economist at Raymond James, said the pandemic caused the strong.

“The fact that they’ve been limited in consumer alternatives for almost three years now has a big impact on consumers’ decisions to continue spending,” Aleman said.

But to finance these expenditures, which began to shift more toward experiences versus goods, consumers relied more heavily on debt. Consumer credit card balances rose 15% year over year in the third quarter, the highest rate in more than 20 years, the New York Federal Reserve said Tuesday.

But the central bank is trying to lower interest rates as it raises them Stubbornly high inflation is hurting consumers, said Gregory Dako, chief economist at EY Parthenon. Consumer sentiment has fallen in recent months.

“It is increasingly clear that household budgets are being stretched by persistently rising inflation, forcing many to dip into their savings and use credit to finance spending,” he wrote on Wednesday. “This is by no means sustainable, especially for families in the lower middle of the income spectrum. “So, while aggregate excess savings remains high at around $1.5 trillion, we expect to see a marked slowdown in consumer spending activity under the weight of inflation and high interest rates.”

Still, while strength in consumer spending is good for the economy, it could pose problems for the Fed.

“Even after adjusting for inflation, consumers are spending more,” Wells Fargo economists Tim Quinlan and Shannon Seery said in a note. “It’s tempting to cheer about consumer ‘resilience,’ but persistent spending power gives businesses no incentive to forgo price increases, making the task of keeping inflation in check difficult for policymakers.”

The October retail sales report comes amid a flurry of consumer-related economic data and retailer earnings reports ahead of the holiday shopping season.

The two main inflation indicators, the Consumer Price Index and the Producer Price Index, showed that price increases were cooling.

Scott Brave, head of economic analysis at Morning Consult, said: “We saw the easing of consumer inflation in October last week in the CPI report and into this morning’s retail sales numbers.”

Claire Tassin, a retail and e-commerce analyst at Morning Consult, said in an interview Wednesday that while inflation appears to have peaked, consumer behavior has changed.

“Everyone is more price sensitive lately,” said CNN Business senior correspondent Christine Romans. “People are certainly changing the stores they shop at, so I can totally see more affluent shoppers shopping at Walmart more often, especially to get some of the lower prices from other stores they traditionally shop at. I will know.”

On Tuesday, Walmart reported that its sales in the United States rose 8.2% last quarter compared to the previous year. The discount retailer said it saw “strong grocery share gains,” including among high-income households.

However, earlier Wednesday, Target said its profit fell 52% last quarter and revenue rose just 3.4% as consumers began to feel the heat from inflation. The retailer has warned of a slow holiday season ahead as shoppers continue to bargain.

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