October retail sales up 1.3%, consumers resilient heading into the holiday season
Americans have increased spending at retailers, restaurants and auto dealerships over the past month, a sign of consumer resilience as the holiday shopping season begins amid painfully high inflation and rising interest rates.
The government said on Wednesday that retail sales rose 1.3% in October vs. September from a flat reading in September vs. August. The increase was led by car sales and higher gasoline prices. However, excluding autos and gas, retail spending rose 0.9% last month.
Even adjusted for inflation, spending grew at a solid pace. Prices rose by 0.4% in October compared to September. The government’s solid report on Wednesday contrasted with dismal figures from retail chain Target, which announced weaker-than-expected earnings as its increasingly price-sensitive customers pulled back spending.
Steady job growth, rising wages and higher savings after many people restricted travel and entertainment during the pandemic have enabled surprisingly steady spending from consumers, particularly those on higher incomes.
Economists pointed to two other factors that likely contributed to the gain: Amazon ran another Prime Day promotion last month, and California handed out inflation relief checks of up to $1,050.
Still, there are persistent signs that cracks are forming in consumers’ ability to keep up. More households are relying on credit cards to pay bills, with nationwide credit card balances up 15% year over year in the July-September quarter, the largest year-over-year increase in two decades, according to a federal report dated Tuesday Reserve Bank of New York.
And a study conducted by Bank of America last week found that consumers are increasingly looking for cheaper options when it comes to groceries and restaurants. Credit and debit card transactions by Bank of America customers show that they now frequent cheaper fast-food restaurants than full-service restaurants after eating equally at both for about a year after spring 2021.
The Bank of America report also found that inflation-adjusted grocery spending per household has fallen sharply, falling below pre-pandemic levels, although visits to grocery stores have not declined. This suggests that many people are looking for cheaper options when shopping for groceries.
Walmart, the world’s largest retailer, on Tuesday reported strong third-quarter sales growth as more shoppers, including those with higher incomes, turned to its cheaper groceries.
The company said consumers are turning to private label for baby products and baked goods, among others. It also sees wealthier customers. About three-quarters of Walmart’s grocery market share gains came from customers with annual household incomes of $100,000 or more, the company said.
Inflation hit 7.7% yoy in October, down from a peak of 9.1% in June but still at levels not seen in 40 years. There are some signs that prices are likely to fall further as many supply chain issues have been resolved and stock levels are rising at many stores. Some chains may soon have to resort to discounts to shed excess merchandise.
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