US shoppers spent more at retailers last month in latest sign consumers are driving growth
WASHINGTON — Americans increased their purchases at retailers last month due to low unemployment, steady wage increases and rising stock and home values helped maintain their willingness to spend despite higher prices.
Retail sales rose 0.4% from August to September the Commerce Department said Thursday, up from 0.1% last month and the third straight increase. Online retailers, restaurants and supermarkets all reported higher sales.
Turnover at gas stations fell due to lower pump prices. Retail sales have not been adjusted for inflation and the prices of goods have fallen slightly over the past month.
With the presidential election in its final weeks, Thursday’s figures are the latest sign that household spending is fueling a steady economic expansion, even as inflation has cooled. Donald Trump insisted on this in his campaign for the White House drastic new rates on all imports and lower corporate taxes are needed to achieve healthy growth. Vice President Kamala Harris has responded with proposals to expand tax breaks for families with children and subsidize housing construction in an effort to lower housing costs.
“Retail sales came in well above expectations and continue to defy the ‘weak economy’ thesis,” said Quincy Krosby, chief strategist at LPL Financial, an asset management firm.
Restaurant sales rose 1% between August and September, a sign that many Americans are confident enough in their finances to increase their discretionary spending. Rising sales at sporting goods stores point in the same direction.
Purchases at clothing stores rose 1.5% last month, although sales at electronics and furniture stores fell.
Last week the government reported that consumers prices rose only 2.4% in September compared to a year earlier, down from a peak inflation of 9.1% in June 2022 and barely above the Federal Reserve’s 2% target. With prices coming under control, the Fed last month cut its benchmark interest rate by one for the first time in four years larger than normal half point. By the end of the year, economists expect two additional Fed rate cuts, with smaller quarter-point hikes, which should help ease borrowing costs over time.
Still, the healthy pace of retail sales could strengthen the hand of Fed officials who have signaled it a more cautious approach of tariff reductions. Last month’s half-point interest rate cut coincided with concerns that the labor market could weaken quickly. But then the jobs report for September showed hiring fetched last month the unemployment rate fell to a low 4.1%.
Many analysts say they think lower inflation and lower interest rates will help support the economy in the coming months. The economy grew by a solid annual interest rate of 3%.
Yet Fed research has shown that it is upper- and middle-income Americans who are driving rising consumer retail spending. In contrast, many lower-income households have struggled to keep up with sharply higher prices and interest rates, and have increased their spending much less.
The lagging outcome for lower-income consumers marks a shift from before the pandemic, according to a research note by Sinem Hacioglu Hoke, a Fed economist, and two colleagues. Before the pandemic, retail spending rose at about the same pace for all income groups. But about three years ago, upper- and middle-income consumers started spending money much faster than lower-income consumers.
In August 2024, spending on retail goods was nearly 17% higher than in January 2018 for higher-income households, defined as those earning more than $100,000. For middle-income households – those earning between $60,000 and $100,000 – their spending rose 13.3% over the same period. And for those earning less than $60,000, spending has increased just 7.9% since 2018, and actually fell between mid-2021 and mid-2023.
Thursday’s retail sales report comes amid expectations for a solid holiday shopping season, though perhaps not as robust as last year, with many consumers feeling pressure from higher prices despite easing inflation. The National Retail Federation has done that predicted that consumers will increase their spending in November and December by between 2.5% and 3.5% compared to the same period a year ago. During the 2023 holiday shopping season, spending was up 3.9% compared to 2022.
To try to attract shoppers, many retailers, from online holiday decor retailer Balsam Hill to craft store Michaels, are showing holiday merchandise and marketing earlier than they did a year ago. For the first time, Balsam Hill transformed what is traditionally the fall catalog, which shipped in September, into a holiday book.
The company’s CEO, Mac Harman, said sales of Christmas decorations peaked in mid-September, a month earlier than a year ago. Harman said he also noticed that Halloween decorations sold briskly in September, also a month earlier than 2023.
Michaels, based in Irving, Texas, said it was now, almost a month earlier, setting up a Christmas decorations store called Sprinkle Shop. It is also launching its DIY offering three weeks earlier than usual, as some customers appear to want to save money by making their own gifts.
___
D’Innocenzio reported from New York.