Americans may not be spending as quickly as they were earlier in the year, but it’s still probably enough to help the economy sustain a respectable pace of growth heading into the holiday-shopping season.
Retail sales climbed in September by 0.6 percent, the most in three months, as consumers purchased more cars, furniture, home-improvement goods and meals out, according to Commerce Department figures released on Friday. While one aspect of the data caused some analysts to trim their third-quarter estimates for gross domestic product, the pickup in demand last month leaves spending on a better trajectory.
In light of solid fundamentals including job growth and modest wage gains, investors continue to see the economy as healthy enough for Federal Reserve policy makers to raise interest rates by the end of the year. Separate figures showed budding price pressures in the production pipeline, which may help inflation creep closer to the central bank’s goals.
“The consumer will obviously carry growth,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets LLC in New York. It was a “pretty constructive report when you dig beneath the surface,” he said.
One unexpected setback Friday was a reading on consumer sentiment. The University of Michigan’s gauge dropped to a one-year low in early October as household expectations grew the dimmest since September 2014.
Still, the survey’s expectations index “tells you a lot less about consumption than current conditions,” and might be due to election uncertainty, Oubina said.
Fourth Quarter
A rebound in sentiment may nonetheless make it easier for Americans to open their wallets in the fourth quarter after a projected slowdown in the previous three months.
The blemish in the retail report was a figure that’s used to calculate GDP and which excludes dining out, autos, gasoline stations and building materials. So-called retail control group sales rose just 0.1 percent, well below the median forecast of a 0.4 percent gain and following declines in the previous two months.
That’s why analysts reduced their GDP projections. RBC economists lowered their tracking estimate of third-quarter growth to 2.7 percent from 2.8 percent, Oubina said. The Federal Reserve Bank of Atlanta’s GDPNow tracking forecast calls for 1.9 percent growth, down from a previous estimate of 2.1 percent.
Household spending in the third quarter “is shaping up to be a touch weaker than we anticipated,” said Ryan Sweet, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “It’s just payback for a very strong second quarter,” when spending rose at an annualized 4.3 percent rate, the strongest since the end of 2014.
Richard Curtin, who’s directed the Michigan survey since 1976, said he’s upbeat on the holiday shopping season despite the latest sentiment report.
“I was thinking that we would see a reasonably strong Christmas season, and I still think it is true,” he said on a Bloomberg conference call. “But we will have to wait to see how much this decline in sentiment had to do with the uncertainty surrounding the election as opposed to consumers’ views of the future of the economy.”
Another report Friday from the Labor Department showed wholesale prices increased more than forecast last month. The 0.3 percent advance in the producer-price index indicates more stable commodity costs and a diminishing effect from last year’s surge in the dollar are allowing for a pickup in price pressures that could filter their way to consumers.
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