U.S. Retail Sales (October 2023)

U.S. retail sales retreat in October for the first time in seven months 

• Retail sales fell by -0.1% month-on-month (m/m) in October, down from September's reading of 0.9% growth. This was slightly better than consensus forecast calling for a larger decline of -0.3%. 
• Trade in the auto sector pulled back on the month falling by -1.0% m/m, reflecting a decline in sales at motor vehicle dealers (down -1.1%) which was partially offset by growth at automotive parts and accessory stores (up +0.4%).
• Sales at gasoline stations fell -0.3% m/m relative to the 1.0% increase recorded in September, largely reflecting the pullback in gas prices. The building materials and equipment category declined by -0.3% m/m for a second consecutive month.
• Sales in the retail sales "control group", which excludes the above volatile components (autos, building materials and gas) and is used to estimate personal consumption expenditures (PCE) came in at 0.2% m/m. September's figure was also revised upwards to show an increase of 0.7% instead of the previously reported 0.6%.
  • Among the control group, the largest contribution came from sales at health and personal care store (+1.1% m/m), food and beverage stores (+0.6%) and non-store retailers (+0.2% m/m).
  • The main categories posting declines were miscellaneous stores retailers  (-1.7% m/m), sporting goods and hobby store (-0.8% m/m), and department stores (-0.2% m/m). 
• Food services & drinking places – the only services category in the retail sales report – was up 0.3% m/m.

Key Implications

• And there you have it. The pullback in retail spending in October did not come as a surprise as market participants have been forecasting a retrenchment in sales for some time. While part of the decline in the headline number reflected lower prices for gasoline, sales in the key control group also lost momentum, though still maintaining its seven month growth streak. Today's numbers kick off the fourth quarter on a softer note, with real consumption expenditure currently tracking around 1.8% for Q4. 
• The slowdown in spending reported today, combined with yesterday's lower inflation numbers is another step in the direction the Fed wants to go. As higher interest rates continue to work through the economy, spending is likely to remain much more tepid, relative to the boil witnessed in Q3.    

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