Retail sales rose by 1.7% in October as consumers, flush with cash, signaled a strong start to the final quarter of the year, according to a report from the U.S. Census Bureau on Tuesday.
While high inflation remained the top concern for consumers, they continued to open their wallets.
The increase beat an upwardly revised 0.8% in September and was the third month in a row that retail sales exceeded expectations. The data showed strength across sectors as sales that exclude automobiles and gasoline rose by 1.4%, up from the 0.5% increase in September.
While high inflation remained the top concern for consumers, they continued to open their wallets. In fact, our estimate points to an increase of 0.8% in real retail sales for the third straight month after adjusting for inflation.
The significant increase was a reflection of consumers’ eagerness to spend in a way that they were not able to a year ago, during the pandemic. Now, as the delta variant subsides, consumers have high excess savings built up during the pandemic and are expected to make up for lost ground this holiday season.
Inside the report, auto sales rose by 1.8% on the month, following a 1.2% increase in September, as prices rose by 1.9%. Because data for auto dealers and parts was not available, we expect that real auto sales for the month, after a likely downward revision, will show a decrease after adjusting for inflation.
Gasoline sales continued to surge, rising by 3.9% in October following a 3.2% increase in September as energy prices spiked. Since then, though, gasoline prices have eased.
Except for health, personal care and clothing, sales of all other categories posted an increase on the month, led by nonstore retailers at 4%, electronics at 3.8%, and department stores at 2.2%.
The supply chain bottlenecks have prompted retailers to offer discounts earlier than normal this year. For example, Target began its price-match guarantee in early October, compared with November in previous years.
Facing limited inventories and product varieties, consumers also got ahead of the peak shopping season by spending early in October. This change helps to explain such sharp increases in nonstore retailers and department stores in October.
The takeaway
High prices have been a significant headwind to retail sales in the last quarter of the year. But there are plenty of reasons to expect that spending for this holiday season will be much better than last year’s as the economy continues to shrug off the residual impact of COVID-19.
