October’s retail sales indicated underlying strengths rather than weaknesses.
While sales slowed, the data came in higher than expected. When considered with an upward revision to September’s reading, October’s retail sales indicated underlying strengths rather than weaknesses. Producer prices showed a significant drop of 0.5% in October, much lower than forecasts. The control group for retail sales, which serves as a more consistent proxy for underlying consumer spending appetites, grew at a steady pace to start the final quarter of the year. This is certainly good news, especially considering the headwinds on the horizon. It has been evident for several months now that American households’ balance sheets remain exceptionally strong, providing ample support for further spending growth. With estimated excess savings of at least $400 billion, it’s difficult to bet against American consumers in the next couple of months. Learn more of RSM’s insights into the economy and the middle market. Ultimately, consumers will curtail their spending only when they must. As long as income growth remains solid and job security is maintained, we should anticipate a period of sustained economic expansion, not a recession. The downside surprise from producer inflation adds to the argument that the Federal Reserve should be done hiking rates this cycle. We think that the rate cut conversation will begin to surface more often than not in the next couple of Fed meetings. While the central bank won’t likely talk about cuts publicly and prematurely, we should expect more hints on the rebalance of its policy stance toward a more dovish one starting this December.