Retail Sales Show Resilience of Economy’s Growth Engine

U.S. retail sales strengthened in September by more than forecast in a broad advance, illustrating resilient consumer spending that continues to power the economy.

The value of retail purchases, unadjusted for inflation, increased 0.4 percent, after a 0.1 percent gain in August, Commerce Department data showed Thursday. Excluding autos and gas stations, sales climbed 0.7 percent.

The sales figures cap another quarter that will likely prove to have provided solid economic growth and consumer demand, fueled by a hardy labor market. While the retail report does little to reverse expectations that the Federal Reserve will cut interest rates by 25 basis points  (bps) next month, it adds to evidence that the economy is not yet materially downshifting.

The S&P 500 opened higher, while Treasury yields and the dollar also advanced.

Although the retail figures offer a straightforward momentum in the economy, separate releases Thursday bore the impact of temporary factors. Industrial production declined in September, largely due to a pair of hurricanes and a strike at Boeing Co.

Applications for jobless benefits fell a week after a steep increase due to Hurricane Helene, as well as some cutbacks in the auto industry that boosted unemployment insurance claims in the Midwest earlier this month.

In the retail data, 10 of the report’s 13 categories posted increases, led by miscellaneous store retailers, which include florists and pet stores. Apparel and grocery stores also posted solid advances. Receipts at gas stations decreased, reflecting cheaper prices at the pump. Auto sales barely rose, defying expectations for a bigger increase.

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The data showed so-called “control-group sales”—which feed into the government’s calculation of goods spending for gross domestic product (GDP)—surged 0.7 percent in September, the strongest in three months. The measure excludes food services, auto dealers, building materials stores, and gas stations.

Control-group sales increased at a robust 6.4 percent annualized pace in the three months ended in September, the strongest since early 2023. After the figures, the Atlanta Fed’s GDPNow forecast penciled in a 3.6 percent annualized increase in personal consumption for the third quarter, which would be the strongest pace this year.

Figures issued late last month by the Bureau of Economic Analysis (BEA) showed wages and salaries, unadjusted for price changes, increased 0.5 percent in August—the most in three months—suggesting consumers have the wherewithal to spend. And job growth in September was the strongest in six months, with employers adding more than a quarter million jobs.

However, research from Fed economists suggests that the consumers powering U.S. economic growth are increasingly those who are higher up the income ladder and likely enjoying a wealth effect from asset-price gains.

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What Bloomberg Economists Say…

“Barring a sharp downturn in the labor market, we expect consumer spending to continue growing moderately amid signs that frugal consumers are seeking cheaper options for the holiday season, and even mid- to high-income groups are under financial pressure.”

— Estelle Ou & Eliza Winger

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Not only are the retail figures unadjusted for price changes, but they also largely reflect purchases of goods, which comprise a relatively narrow share of overall consumer outlays. Data later this month will provide more details on September inflation-adjusted spending on goods and services.

Spending at restaurants and bars, the only service-sector category in the retail report, increased 1 percent last month, the most in nearly a year.

Separate data Thursday showed that sentiment among U.S. homebuilders jumped to a four-month high this month, with the prospect of lower mortgage rates fueling optimism about demand for new houses in the coming year.

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