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Retail sales rose a moderate 0.4% in October, but only 0.1% if you exclude motor vehicles and gasoline. However, “core” sales in September were revised up to a very strong 1.2% rise, so the slight October pickup means that September’s high level is being maintained. This indicates that consumers don’t appear ready to pull back their spending yet.
Among categories of sales, electronics and appliances jumped, reversing most of their decline in September. Health and personal care, sporting goods, clothing and miscellaneous stores gave back part of the strong gains they made the previous month. E-commerce rose only a little after a strong September.
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Restaurants had yet another strong month, rising 0.7% following a 1.2% gain the previous month. Consumer spending on eating out tends to reflect whether consumers are feeling pinched or not, so the pickups could indicate further gains in overall spending.
Motor vehicle sales were strong in October, rising 1.6%. However, some of this strength could be the result of vehicle replacements after Hurricanes Helene and Milton in the Southeast in late September and early October. The hurricanes could have juiced building materials sales as well, both before and after. These sales rose 0.5% in October, following 1.0% in September. This category will likely do well the rest of this year.
Consumer spending on services excluding restaurants rose a moderate 0.5% in September, the latest month for which data are available. Spending on services has been pretty consistent, with 0.5% increases in five of the past six months. It is expected that these moderate increases will continue.
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 saving 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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