WASHINGTON: US retail sales rebounded sharply in October as purchases of motor vehicles and building materials surged, but data for the prior two months was revised lower and the underlying trend suggested that consumer spending was probably slowing down.
Still, the report on Thursday from the Commerce Department showed broad gains in sales ahead of the holiday shopping season, which bodes well for consumer spending and the overall economy as the fourth quarter gets under way.
“This morning’s release confirms our expectations of a strong holiday season,” said Tim Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “But, as the calendar flips to 2019, we expect a further moderation in spending, as the boost from tax cuts will start to fade for consumers.”
Retail sales increased 0.8 per cent last month. Retail sales in September slipped 0.1 per cent instead of rising 0.1 per cent and sales in August were also weaker than previously thought.
Economists polled by Reuters had forecast retail sales increasing 0.5 per cent in October. Sales rose 4.6 per cent from a year ago.
Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3 per cent last month. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Data for September was revised lower to show core retail sales rising 0.3 per cent instead of gaining 0.5 per cent as previously reported. Core retail sales fell 0.2 per cent in August rather than being unchanged.
While that suggests some loss of momentum in consumer spending, which accounts for more than two-thirds of US economic activity, consumption is being supported by the Trump administration’s $1.5 trillion tax cut package. Declining oil prices are seen aiding retail sales in the months ahead.
A robust labour market, marked by a 3.7 per cent unemployment rate, is also underpinning spending. The lowest jobless rate in nearly 49 years is boosting wages, with annual wage growth recording its biggest increase in 9-1/2 years in October.
Jobs market strength was underscored by a separate report from the Labour Department on Thursday showing a marginal increase in the number of Americans filing for unemployment benefits last week.
Strong domestic demand and a tightening labour market support views that the Federal Reserve will increase interest rates in December for the fourth time this year. The US central bank last Thursday kept rates unchanged, but said data “indicates that the labour market has continued to strengthen and that economic activity has been rising at a strong rate.”
The retail sales pace, if sustained, could keep the economy on a solid growth path even as business investment is slowing, the trade deficit is expected to deteriorate further and the housing market continues to weaken. Auto sales jumped 1.1 per cent last month after falling 0.1 per cent in September. Sales at building material stores surged 1.0 per cent in October. — Reuters
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