September turned out to be a much weaker month for spending at retail stores including gas stations and restaurants, according to data released by the Commerce Department on Tuesday.
Even with the producer price index, which was also released on Tuesday, holding firm, monthly retail sales rose by a modest 0.2% for all retail items, and fell by 0.1% for the control group, which is an important proxy for broader consumption spending.
Once adjusted for inflation, total retail sales will most likely be in negative territory for September despite the recent summer rebound from back-to-school shopping.
It is too early to say if the weaker sales data is a sign of consumers losing momentum, but one thing is clear: Volatility has and will remain an issue.
The shift in the spending cycle because of tariffs might explain why consumers pulled back in September after front-running new tariffs over the summer.
Slowing income growth might have started to take a toll, especially when it comes to low- and middle-income earners who live paycheck to paycheck.
Read more insights from RSM’s global team of economists.
In a separate report on Tuesday, producer inflation stayed firm with a monthly increase of 0.3% for the top-line figure and 0.1% for the core metric that excludes food and energy.
On a year-over-year basis, overall inflation stayed at 2.7% while the core number decreased to 2.6%. The core prints came out lower than expected.
For the Federal Reserve, the data should tilt slightly toward a rate cut in December, favoring the doves. Still, the decision remains a tossup after the much stronger than expected jobs report released last week.
We don’t think the picture will get any clearer from now until the next Fed meeting on December 9 and 10 as data releases are delayed. The conditions are set for one of the most contentious Fed meetings in recent times.
Inside the data
Eight out of 13 categories in the retail sales data posted increases, yet key categories like vehicles, online sales and clothing were all in the red.
Consumers, however, continued to dine out as spending on restaurant and drinking places rose by 0.7%. Gasoline sales rose by a strong 2%, while health and personal care also rose by a solid 1.1%.
