Retail sales spike casts doubt on an impending recession

Associated Press/David Zalubowski
A shopper considers gloves placed in displays in a Costco warehouse lte Sunday, Nov. 13, 2022, in Sheridan, Colo. (AP Photo/David Zalubowski)

An October surge in retail sales is raising doubts about how close the U.S. economy actually is to a recession.

Americans spent far more money on consumer goods and services in October than economists had expected, according to Census Bureau data released Wednesday. While high interest rates and stubborn inflation have taken a chunk out of retailers’ profits, it’s done little to keep down sales as a whole.

U.S. retailers made $694.5 billion in sales last month, according to the Census Bureau, an increase of 1.3 percent from September. Sales beat expectations of a smaller 1 percent increase, according to projections from experts, and rose broadly across the economy.

Sales also rose 0.9 percent when eliminating purchases at gasoline stations, which rose sharply as gas prices rebounded in October. Experts attributed some of the increase to the beginning of holiday shopping, kicked off in part by an Amazon Prime sales event held last month.

“Retail sales data surged in October as holiday shopping started early for the second year in a row. The strong month, which followed a flat month in September, suggested that, at least for now, a recession was not at hand,” Tuan Nguyen, economist at audit and tax firm RSM, wrote in a Wednesday analysis.

The October rebound in retail sales is the latest sign of resilience from U.S. households in the face of persistently high inflation. 

Experts expected retail sales to fall after the Federal Reserve hiked interest rates to levels meant to slow the economy and bring prices down.

Some sectors of the economy — including the housing market and stock market — have indeed faltered under higher interest rates, but American households have been able to keep pushing through higher prices for goods and services.

“October retail sales data confirms that consumers continue to stretch their dollars on household priorities, including gifts for family and loved ones this holiday season,” Matthew Shay, president and CEO of the National Retail Federation (NRF), said in a Wednesday statement.

Roughly 66 percent of the U.S. economy is driven by consumer spending, and the holiday shopping season is a crucial stretch for U.S. retailers. The NRF predicted its members would see record-breaking holiday sales even with the broader economy slowing and inflation keeping prices high. 

Shay and other experts say a strong job market has helped keep retail sales steady, even as inflation outpaces wages.

The U.S. added 261,000 jobs in October, according to data released earlier this month, far exceeding economists’ expectations even as the unemployment rate rose to 3.7 percent. Businesses are also laying off fewer workers than they did before the pandemic, and wages still grew more than 4 percent over the past 12 months.

“With employment and wages growing and shoppers accessing accumulated savings, we expect the trend to continue. Early holiday deals that enticed customers appear to underly the October numbers and more promotions will be seen in November and December, which are historically the big holiday shopping months,” NRF chief economist Jack Kleinhenz said.

While retailers are still seeing sales increase, albeit at a slower pace than last year, companies have had mixed financial success weathering a change in consumer preferences.

Retail stocks closed with steep losses Wednesday after Target reported dismal third-quarter profits and warned of fading margins for big-name retailers going forward.

“It was a precipitous decline and, frankly, we’ve seen those trends in the early part of November as well,” Target Chief Growth Officer Christina Hennington said in a call with reporters, according to CNBC.

Consumers are spending more money on discount alternatives to brand-name items and less on the technology and appliances that households bought en masse during the depths of COVID-19 lockdowns. Retailers are also increasingly desperate to clear out excess inventory of items that took too long to be delivered due to supply chain issues and are no longer popular among customers. 

“The surge in both sales and volume numbers was also driven by retailers offering more discounts than usual as excess inventories continued to grow and a slowdown in demand loomed,” Nguyen explained.

“There are signs, though, that retail sales may soon wane as the two most important tailwinds — excess inventories and excess savings — will most likely be depleted after a robust holiday season, giving no more cushion for consumers to fall back to.”

Tags federal reserve inflation interest rate hikes October sales Recession Retail sales Stock Market U.S. job market US economy
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