WASHINGTON- US retail sales fell for the first time in seven months in October as motor vehicle purchases and spending on hobbies dropped, pointing to slowing demand at the start of the fourth quarter that further strengthened expectations the Federal Reserve is done hiking interest rates.
That was supported by other data on Wednesday showing the biggest decline in producer prices in three-and-a-half years in October on the back of cheaper gasoline. The reports followed on the heels of news on Tuesday that consumer prices were unchanged last month for the first time in more than a year.
The data, combined with a cooling labor market, led economists to conclude that the US central bank’s current rate hiking cycle was over. Still, there is no sign that the economy is sliding into recession. The drop in sales in October was less than expected and followed three straight months of hefty gains.
“Signs of moderating consumer demand and inflation argue for an extended Fed pause,” said Lydia Boussour, senior economist at EY-Parthenon in New York. “While we believe the Fed is done raising interest rates, the bar is still high for rate cuts.”
Retail sales slipped 0.1 percent last month, the Commerce Department’s Census Bureau said. Data for September was revised higher to show sales increasing 0.9 percent instead of the previously reported 0.7 percent rise. Economists polled by Reuters had forecast retail sales would fall 0.3 percent.
Retail sales are mostly goods and are not adjusted for inflation. Sales were mixed last month, with receipts at motor vehicles and parts dealers falling 1.1 percent . Economists attributed some of the decrease to the recently ended United Auto Workers strike, which could have limited supply.
Furniture store sales dropped 2.0 percent , while receipts at building material and garden equipment outlets slipped 0.3 percent . There was a 1.7 percent decline in sales at miscellaneous retailers. Sporting goods, hobby, musical instrument and book stores sales fell 0.8 percent .
Clothing store sales were unchanged, while receipts at electronics and appliance outlets rose 0.6 percent . Online sales rose 0.2 percent , despite Amazon’s second Prime Day promotion.
Sales at food services and drinking places, the only services component in the report, gained 0.3 percent . Economists view dining out as a key indicator of household finances.
Receipts also rose at health and personal care stores as well as food and beverage outlets. Though some of the dip in retail sales was payback after the recent streak of strong growth, it was also a sign that consumers are feeling the heat from higher borrowing costs, with most lower-income families relying on credit cards to fund purchases after exhausting excess savings accumulated during the COVID-19 pandemic.
Student loan repayments resumed for millions of Americans, but recent data from the Bank of America Institute showed no indication yet that the change was negatively impacting spending.
Target on Wednesday forecast a holiday-quarter profit largely above Wall Street expectations, but noted that consumers were delaying spending until the last minute, which CEO Brian Cornell said was “a clear indication of the pressures they’re facing as they work to stretch their budgets until the next paycheck.”
Stocks on Wall Street extended Tuesday’s rally. The dollar rose against a basket of currencies. US Treasury prices fell.
Financial markets are anticipating a rate cut next May, according to CME Group’s FedWatch Tool. Since March 2022, the Fed has raised its benchmark overnight interest rate by 525 basis points to the current 5.25 percent -5.50 percent range.
