US retail sales flat in October, economic worries increase

Consumer spending in October remained flat, indicating that American households' spending in autumn is weaker than economists expected. Data released by the U.S. Census Bureau on Tuesday showed that retail sales in October barely changed compared to September. Economists surveyed by FactSet had previously predicted a growth of 0.05%. When calculated on an annualized basis, sales increased by 3.5%. This data will provide new insights into consumer strength ahead of the holiday season. However, investors will have to wait for more recent holiday demand data as federal agencies work to address delays caused by the recent government shutdown. The retail sales report for September was released in late November, with the main conclusion being that spending in early autumn remained resilient but growth started to slow, especially in non-essential items. Economists believe that consumers tightened their wallets in October. RBC Economics Senior U.S. Economist Michael Reid wrote, "The September retail sales data suggest that consumer momentum is waning; following several months of robust spending earlier, we expect spending heading into the holiday shopping season to be softer." He added that weaker auto sales dragged down overall spending. Auto sales declined by 1.6%, partly due to the expiration of federal tax incentives for electric vehicles. Earlier this year, many rushed to buy cars due to concerns that subsequent tariff increases would raise costs. Lower gasoline prices also dampened growth in gas station revenues. Data from U.S. Bank on credit and debit card spending indicated declines in sales of gasoline, home improvement, and groceries. Eight out of thirteen retail categories saw growth, with department stores and online retailers showing significant increases. It is important to note that the Census Bureau's spending data is not adjusted for inflation. Recent price increases related to new tariffs mean that actual (inflation-adjusted) spending is much lower than overall data. The retail report for October was originally scheduled to be released on November 14, but was postponed due to the government shutdown. Federal agencies are recovering from the fall shutdown, and the Census Bureau has not yet determined a release date for November spending data. Third-party data shows that consumer spending over the Black Friday weekend was better than expected as people searched for bargains both in physical stores and online, which could provide a much-needed boost to the November report. Mastercard estimates that total online and in-store shopping on Black Friday increased by 4.1% year-over-year. Investors and economists closely monitor consumer spending as it is a major driver of economic growth and can "easily dictate the future direction of monetary policy," wrote Fundstrat's research team. If spending is too strong, the Federal Reserve may judge it unnecessary to cut interest rates to support the economy. Weak spending may suggest the need to lower rates to stimulate demand. However, the Federal Reserve has not yet sounded the alarm on the state of consumer health. In fact, Chairman Jerome Powell said last week that resilient consumer spending has given many Federal Open Market Committee members confidence to raise their economic growth forecasts for 2026. But Powell also admitted that the so-called "K-shaped economy" (describing a scenario where high-income households seem to be thriving while low- and middle-income consumers are struggling) is clearly impacting spending. Purchases from lower-income households appear to be decreasing, while higher-income individuals, benefiting from higher housing prices and stock market gains, are driving a significant portion of consumer spending.