U.S. retail sales top forecasts in sign of durable consumer demand

U.S. retail sales increased in September by more than forecast in a broad advance that suggests durable household demand as the third quarter drew to a close.

The value of retail purchases, unadjusted for inflation, increased 0.7% after an upwardly revised 0.8% gain in August, Commerce Department data showed Tuesday. Excluding gasoline, September sales advanced 0.7%.

So-called control group sales – which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gasoline stations – rose a better-than-expected 0.6%.

In the three months ended in September, control group sales rose an annualized 6.4%, the largest end-of-quarter advance since June 2022.

Purchases rose in eight out of 13 categories last month, including stronger receipts at restaurants, motor vehicle dealers and personal care stores.

The advance showcases a consumer that’s still powering ahead despite the recent energy-driven pickup in inflation.

While wage growth is starting to lose steam, the labor market remains generally strong, offering Americans the leeway to keep spending.

The data bolster expectations of stronger economic growth in the third quarter.

“The death of the U.S. consumer has been greatly exaggerated,” Omair Sharif, president of Inflation Insights LLC, said in a note.

Including control group sales revisions, “this is a good all-around report that shows continued strength in consumer spending.”

Sustained strength in consumer demand, in the aftermath of September price data showing stubborn inflation, risks prompting Federal Reserve policymakers to raise interest rates again before the end of the year.

A separate report out Tuesday showed U.S. factory production rose last month, suggesting manufacturing is stabilizing.

Treasury yields and the dollar rose, while the S&P 500 Index fell, as traders boosted bets on another Fed rate hike.

Separate government data out last week showed consumer prices rose at a brisk pace for a second month in September, highlighting the sticky nature of inflation.

Another report pointed to a hotter-than-expected increase in prices paid to US producers last month.

While inflation is still running well above the Fed’s 2% target, the prices of key consumer goods including apparel and furniture fell sharply last month.

The price declines help explain a more restrained value of receipts at clothing retailers and appliances merchants in September.

Apparel store sales fell 0.8% in September, the first decline in six months.

The retail figures largely reflect spending on merchandise, limiting the takeaways of this particular report.

Real spending on both goods and services for September will be released later this month.

The retail sales report showed purchases made at restaurants and bars – the only service-sector category in the report – increased 0.9% last month. Receipts at grocery stores rose 0.4%.

Sales of motor vehicles jumped 1% in September, the largest gain in four months.