Washington, Oct 17, 2024 – U.S. retail sales in September rose by 0.4%, outpacing forecasts and suggesting consumer resilience heading into the final quarter of the year. The uptick, fueled partly by lower gasoline prices, reinforces forecasts of robust third-quarter economic growth and could influence Federal Reserve decisions on future interest rate cuts.
Strong Consumer Spending Despite Headwinds
The Commerce Department’s advance estimates revealed that total retail and food services sales rose to approximately $714.4 billion in September—up 0.4% from August and 1.7% year-over-year. These gains were broad-based, encompassing sectors such as clothing, online retail, health and personal care, and dining out.
Key category highlights:
- Clothing stores posted a 1.5% gain, driven by back-to-school purchases.
- Online and nonstore retailers showed robust performance, with e-commerce up 0.4% month-over-month and nonstore retail rising 7.1% year-over-year.
- Health and personal care outlets increased by 1.1%, and food services and drinking places grew by 1.0%—the strongest monthly expansion in dining out for the year.
These results reflect solid wage growth, steady employment, and strong household balance sheets, which have provided consumers with the financial flexibility to sustain spending amid elevated living costs.
Why Lower Gas Prices Matter
Gasoline prices fell roughly 12 cents per gallon from August to September, translating into reduced pump costs and freeing up discretionary income for consumers. As a result, spending on gas stations declined by 1.6%, and auto dealership sales remained flat. The savings from lower energy expenses have clearly benefited retail segments beyond autos and fuel.
Implications for GDP and the Economy
Economists now estimate that consumer spending in Q3 contributed to an annualized GDP growth rate of about 3.4%, up from the previous 3.2% forecast, with some revisions suggesting an even modest upward adjustment.
The control retail sales metric—excluding volatile categories like autos and gasoline—jumped 0.7%, a sharp acceleration from August’s 0.3% rise, reinforcing the view of solid underlying consumer demand. Analysts interpret this sustained momentum as a sign that real Q3 consumer spending grew above 3%, likely in the 3%–3.5% range.
Labor Market and Financial Conditions
September’s retail activity coincided with a labor market that, while showing signs of moderation, remains strong by historical standards. Layoffs have stayed low, and wage growth continues to support household spending. Buoyant stock and housing markets have also bolstered consumer confidence, sustaining strong balance sheets and ample savings.
Though annual retail growth has decelerated, strong monthly upgrades and inflation-adjusted increases across a three-month stretch point to ongoing consumer strength.
Federal Reserve Strategy: Less Easing, Greater Caution
Until recently, markets had anticipated multiple quarter-point interest rate cuts by year-end. However, September’s data may prompt the Fed to adopt a more cautious approach.
The strong retail sales figure likely will not discourage the Federal Reserve from cutting interest rates again next month, but it could cement expectations for a smaller 25‑basis‑point reduction. Some analysts note the data strengthens the case for a “soft landing” and supports expectations of just one potential cut in December.
Other economists argue that retail resilience makes a strong case for only modest rate easing, particularly observing strength in services spending.
Broader Implications and Future Risks
Still, the strength in retail sales masks a patchwork consumer landscape. Lower-income households are increasingly constrained, while middle- and upper-income earners continue to drive retail growth. This disparity could influence holiday-season sales and require monitoring.
Looking ahead:
- Holiday spending: The National Retail Federation anticipates holiday retail growth between 2.5%–3.5%—slightly below last year’s pace.
- Inflation and policy: Persistent consumer strength may prompt the Fed to pause after one final quarter-point cut or to slow the pace of easing into 2025.
- Fragile sectors: Non-essential segments—like electronics and furniture—show signs of weakness, with consumers shifting towards practicality amidst tighter finances elsewhere.
Conclusion
September’s retail sales report delivers a confident message: consumers are powering ahead, keeping the economy firmly on track. With growth fueled by strong discretionary spending, healthy labor conditions, and reduced energy costs, the U.S. is poised to close the third quarter with solid momentum.
For the Federal Reserve, this means balancing support for continued expansion against the risk of fueling inflation or exacerbating wealth inequality. As the year winds down, the Fed’s decisions on whether to pause or modestly ease come into sharper focus.
