US retail sales climbed more than expected in September, driven by increased consumer spending at restaurants and apparel stores, signaling that consumers remained resilient through the crucial back-to-school shopping period. According to data released by the Census Bureau, retail sales rose by 0.4% last month, marking a significant acceleration from a modest 0.1% increase observed in August.
Analysts had anticipated a gain of 0.3%, as per a consensus compiled by Bloomberg. Year-over-year, retail sales showed an annual increase of 1.7% in September, highlighting the ongoing strength in consumer purchasing behavior. BMO Chief US Economist Scott Anderson commented on the report, stating, "The September retail sales report shows the US consumer still has formidable spending power that they continue to deploy in somewhat more targeted ways." He noted that retail sales registered their fastest monthly growth rate since July, illustrating a robust consumer inclination towards spending. In-depth analysis reveals that spending at clothing and accessories stores increased by 1.5% sequentially from August, while health and personal care items also saw a rise of 1.1%.
Additionally, spending at bars and restaurants, along with grocery stores, rose by 1% each. Anderson underlined the strength of back-to-school sales within the report, indicating healthy consumer engagement during this peak shopping season. However, the report indicated a stagnation in spending on motor vehicles and parts, while sales in furniture and electronics experienced declines.
According to Anderson, "Sales of many durable goods items were disappointingly soft," suggesting that the cumulative impacts of the Federal Reserve's rate hikes and persistent inflation have dampened consumers' enthusiasm for more expensive items typically financed through credit. Notably, when auto sales are excluded, retail sales demonstrated a 0.5% increase, which was significantly higher than analysts' average expectations for a mere 0.1% improvement.
In annual terms, auto sales reported a slight decline of 0.3%. Moreover, spending at gas stations dipped by 1.6% month-over-month and plunged nearly 11% compared to September of the previous year. Excluding the effects of auto and gas sales, retail sales advanced by 0.7%, exceeding anticipated increases of 0.3%. In the broader economic landscape, weekly applications for unemployment insurance in the US fell last week, although continuing claims rose to their highest level since late July, as reported in separate government data.
Industrial production also took a hit, falling by 0.3% in September, reflecting ongoing economic challenges. The combined data on retail sales, jobless claims, and industrial production further solidifies BMO's outlook that the Federal Reserve will likely implement rate cuts "at a more gradual pace." The central bank reduced its benchmark lending rate by 50 basis points last month, marking its first cut since March 2020.
This sustained monetary policy shift seeks to support economic stability amid fluctuating consumer confidence and spending behavior..