U.S. retail sales decreased in October for the first time in seven months due to a decline in hobby and automobile purchases. This further supports the Federal Reserve’s position that it will stop raising interest rates. This suggests that demand will slow down at the beginning of the fourth quarter.
Other statistics released on Wednesday corroborated that lower gasoline prices in October caused the most significant drop in producer prices in three and a half years. The claims came after the announcement on Tuesday that consumer prices remained flat in March for the first time in over a year.
Economists concluded that the U.S. central bank’s current cycle of rate hikes was ending in light of these statistics and a contracting labor market. Recession-threatening signs are still absent from the economy. October sales declined less than anticipated after three months of significant increases. According to Bill Adams, chief economist of Comerica Bank in Dallas, “the economy is returning to a more normal pace of growth and inflation.”
Retail sales decreased by 0.1% in January, according to the Census Bureau of the Commerce Department. September’s data was updated to reflect a 0.9% increase in sales instead of the previously stated 0.7% increase. Market economists surveyed by Reuters expected Retail sales to decline by 0.3%. Retail sales are primarily of products and are not inflation-adjusted. Sales of autos and components declined by 1.1%, the most significant contributor. According to economists, the United Auto Workers strike, which concluded recently, may have restricted supply, explaining some of the decline. While sales at electronics and appliance stores increased by 0.6%, sales at furniture stores decreased by 2.0%.
There was a 1.7% decrease in sales at other merchants. Book, hobby, athletic products, and musical instrument retailers had a 0.8% decline in receipts. Sales at clothing stores stayed the same. Despite Amazon’s (AMZN.O) second Prime Day offer, online sales increased by just 0.2%.
The lone services component in the report—food and beverage establishments—saw a 0.3% increase in sales. Economists consider eating out to be a significant sign of family wealth. Food and beverage establishments and health and personal care retailers saw an increase in receipts.
The robust surge from the previous day continued as U.S. equities began higher. Compared to a currency basket, the dollar appreciated. Prices of U.S. Treasuries dropped.
RESIDENTS’ SPENDING ON COOLING
According to the FedWatch Tool from CME Group, financial markets expect an interest rate drop in May of next year. The Federal Reserve’s benchmark overnight interest rate has increased by 525 basis points since March 2022, landing in the current range of 5.25% to 5.50%.
Retail sales fell last month, partly due to payback from a recent period of solid growth. Still, it was also an indication that consumers feel the heat from higher borrowing costs, as most lower-class families are turning to credit cards to make purchases after depleting excess savings from the COVID-19 pandemic.
October had a 0.2% increase in retail sales when autos, fuel, building supplies, and food services were excluded. September data was updated to indicate that these “core retail sales” increased by 0.7% as opposed to the 0.6% that had previously been reported.
The GDP’s component representing consumer spending most closely matches core retail sales. The economy’s 4.9% annualized growth pace was driven mainly by a spike in consumer expenditure in the third and second quarters, with a 2.1% growth in the GDP.
The producer price index for final demand fell by 0.5% in October, the most since April 2020, according to different data released on Wednesday by the Bureau of Labor Statistics of the Labor Department. In September, the PPI increased 0.4%.
The PPI was expected to increase by 0.1% by economists. After climbing 2.2% in September, the PPI rose by 1.3% in the 12 months ending in October.
A 15.3 reduction in gas prices was responsible for over 80% of the 1.4% decline in goods prices. Prices for goods increased by 0.8% in September. A 0.2% decrease was observed in food costs. Last month, the price of products increased by 0.1% when energy and energy-related components were excluded. In September, these so-called core goods prices went up by 0.2%.
After rising by 0.2% the previous month, the cost of services remained the same. Flight costs increased by 3.1%. In addition, there were rises in outpatient and inpatient care and road freight transportation prices. However, motel and hotel room rates decreased along with portfolio management costs.
The personal consumption expenditure price indices, which are inflation metrics that the Fed tracks for its 2% objective, are calculated using a variety of factors, including airline costs and portfolio management fees.
Following a 0.3% increase in September, the PPI’s narrower measure—which excludes components related to trade, energy, and food—went up 0.1% last month. After climbing 3.0% in September, the core PPI gained 2.9% year over year in October.