Americans increased their spending at retailers, restaurants, and car dealerships last month, a sign of consumer confidence as the holiday shopping season begins amid rising inflation and rising interest rates.
The government said Wednesday that retail sales rose 1.3 percent in October from September, down from the flat reading in September from August. The increase was led by car sales and higher gasoline prices. However, excluding cars and fuel, retail sales rose 0.9 percent last month.
Sales of powerful vehicles may have been boosted by the arrival of Hurricane Ian in late September, which destroyed up to 70,000 vehicles, according to economists at TD Securities.
Despite the change in inflation, spending increased at a steady pace. Prices rose 0.4 percent in October from September, less than the increase in overall sales. The strong government report contrasted with dismal numbers Wednesday from grocery chain Target, which reported unexpectedly weak profits as its price-sensitive customers cut back on spending.
Job growth, rising wages, and increased savings after many people cut back on travel and leisure activities during the pandemic have led to more spending by consumers, especially those with higher incomes.
Economists pointed to two other factors that may have contributed to the gains: Amazon ran another promotion for Prime Day last month, and California distributed a check to help lower prices to $1,050.
Turning to credit cards
However there are continuing signs that cracks are forming in the ability of consumers to adapt to the highest rise in four decades. More households are relying on credit cards to pay off debt, with global credit card spending jumping 15 percent in the July-September quarter from a year ago, the biggest annual increase in 20 years, according to a report on Tuesday from the Federal Reserve Bank of New York.
“Consumers are turning to credit to help with spending as slowing wage growth and rising interest rates eat away at savings,” said Jeffrey Roach, chief economist at LPL Financial.
And a survey last week from Bank of America found that consumers are looking for cheaper options when it comes to food and dining. Bank of America customer activity, using credit and debit cards, shows that they are now visiting more affordable restaurants than regular restaurants, after eating both equally for about a year after 2021.
The Bank of America report also found that, adjusted for inflation, per-household spending has dropped significantly, to pre-pandemic levels, although shopping mall visits have not fallen. This means that many people are looking for cheaper ways to buy food.
However, analysts said Wednesday’s government report on retail sales showed a healthier economy than previously expected. Morgan Stanley revised its forecast for growth in the October-December quarter to 1.7 percent year-on-year, from an earlier estimate of 0.7 percent.
Price conscious buyers
Strong consumer demand may drive inflation, but other trends may play a role. Auto sales jumped 1.3 percent last month, a retail sales report showed, but that gain, in addition to people changing cars in Florida, partly reflects the easing of problems that have made more cars and semiconductor chips available. Car production has also increased, which has led to more investment, which can lower prices.
Gasoline sales rose 4.1 percent last month, despite higher prices. Internet sales rose 1.2 percent, and restaurant and bar sales rose 1.6 percent.
Still, Target’s sharp decline, which reported a 52 percent drop in profits in its third quarter compared to a year ago, has shown how the combination of higher food prices, higher interest rates, and growing economic uncertainty has taken its toll. other buyers.
Sales weakened sharply in the weeks leading up to Oct. 29, the end of the latest quarter, with many customers refusing to pay full price and wait for a sale, said Target chairman and CEO Brian Cornell. They also buy small packages and sell them to keep colors. That caused quarterly profits to fall well short of expectations, and Wall Street.
In contrast, Walmart, the world’s largest retailer, reported strong sales growth on Tuesday in its third quarter. However, this happened at a time when many consumers, including those with higher incomes, were looking for cheaper food.
The company said consumers are selling their own products in baby products and cookware, among other categories. I also see rich customers. About three-quarters of Walmart’s grocery market profit came from customers with a household income of $100,000 or more, the company said.
Inflation reached 7.7 percent in October from a year ago, down from 9.1 percent in June but still a level not seen in 40 years. There are some signs that prices are set to fall as more domestic inventories begin, increasing inventory levels. many. Some chains may soon have to resort to discounting to clear excess inventory.
