U.S. retail sales saw a significant rise, exceeding expectations and suggesting robust consumer spending. According to the U.S. Census Bureau, retail sales in September increased by 0.4% month-over-month, surpassing the anticipated 0.3% and improving from August's 0.1%. Year-over-year, however, growth has slowed to 1.7%, the lowest since January.
Excluding automobiles and gasoline, retail sales rose by 0.7%, marking a notable increase from August's 0.2%. Of the 13 categories tracked, 10 reported growth, led by gains in grocery store sales, including florists and pet stores. Clothing and food stores also showed solid growth. Gasoline station sales declined due to falling oil prices, and vehicle sales saw minimal growth.
Spending at restaurants and bars grew by 1%, the highest in nearly a year. On an unadjusted basis, retail sales fell by 7.5% month-over-month but remained unchanged year-over-year. The "control group" measurement, which excludes food services, auto dealerships, building material stores, and gas stations, grew by 0.7% in September, the highest in three months, and saw a 6.4% annualized growth over the past three months, the strongest since early 2023.
Prior to this report, the Federal Reserve Bank of Atlanta's GDPNow model projected a 3.3% annualized growth in personal consumption for the third quarter. Data from the Bureau of Economic Analysis showed a 0.5% increase in wages and salaries in August, the highest in three months, which, along with robust job growth, indicates strong consumer conditions. In September, more than 250,000 jobs were added, the strongest in six months.
Analysts suggest that the sales data points to a potentially solid economic growth in the next quarter, fueled by strong labor markets and consumer demand. However, some Federal Reserve economists have noted that economic growth is increasingly driven by higher-income consumers who benefit more from rising asset prices.
Despite this strong retail report, it has minimal impact on reversing expectations of a 25 basis point interest rate cut by the Federal Reserve next month. Following the release of retail and jobless claims data, traders adjusted their rate cut expectations, causing short-term U.S. Treasury yields to rise. The 2-year Treasury yield increased over 5 basis points to 3.995%, while the 10-year yield rose over 5 basis points to 4.073%. The U.S. dollar briefly surged against the yen, while spot gold prices fell slightly.
