In October, US retail sales outperformed expectations, bolstered by a significant uptick in automotive purchases. Data released by the Census Bureau confirmed a 0.4% increase in sales, surpassing the anticipated 0.3% growth. Notably, September's figures were also revised upward, showcasing a growth rate adjustment from 0.4% to 0.8%.
Year-over-year, retail sales experienced a 2.8% rise in October, indicating resilient consumer spending. The sequential fluctuations observed across various goods categories for September and October were described as "quite choppy" by Thomas Simons, an economist at Jefferies. In communication with clients, he noted, "Given that we know economic activity was disrupted in the South due to hurricanes Helene and Milton, there is probably some kind of shift in timing of typical seasonal flows of spending at work here." Simons further added, "Like many other series, it will take another month or two before we have a clear picture of how this will unfold." Motor vehicle and parts spending saw a notable increase of 1.6% last month, while the electronics and appliances sector reported a 2.3% gain.
However, categories such as furniture, home furnishings, and health and personal care products experienced declines, as revealed by the official statistics. Financial markets are currently forecasting a 62% chance that the Federal Reserve will opt to lower its key lending rate by 25 basis points next month, a decrease from the 72% prediction made just the day before.
Contrastingly, the probability of keeping interest rates steady surged to 38%, up from 28%. Recently, the Federal Open Market Committee made a decision to cut interest rates by 25 basis points, following a more aggressive 50-basis-point decrease in September. On Thursday, Federal Reserve Chair Jerome Powell commented on the current state of the US economy, stating that it is "not sending any signals that we need to be in a hurry" to adjust monetary policy. Excluding automotive sales, retail growth in October was modest, showing a 0.1% increase, which was slightly below analysts' expectations for a 0.3% rise.
However, when focusing solely on automotive sales, there was a year-over-year increase of 3.4%. Spending at gas stations slightly increased by 0.1% month-over-month, yet represented a notable decline of 7.1% from October 2023. Overall, retail sales excluding autos and gas grew by 0.1% last month, short of the anticipated 0.3% increase. While it remains early to assert predictions for fourth-quarter personal consumption expenditures, the latest report on retail sales indicates that consumer spending will remain "solid," as articulated by Simons.
He remarked on the general sentiments from various Fed officials that there is escalating concern about disinflation hitting a plateau, as well as the potential rise of the neutral rate. Nevertheless, Simons emphasized that there is unlikely to be sufficient evidence to substantiate these theories before the next Federal Reserve meeting..