Retail sales of goods and food and restaurant services bested expectations in September, rising by 0.4 percent month-over-month in nominal terms and 0.3 percent month-over-month in real terms.

Real retail sales of goods and food and beverage services rose by 4.0 percent annualized in Q3, boding very well for overall real consumer spending and real GDP growth in the quarter. These data pose upside risk to our 1.8 percent annualized real GDP growth forecast for Q3 2024.

Figure 1. Real Retail Sales suggest strong Q3 real consumer spending

Sources: Census Bureau and The Conference Board.

Trusted Insights for What’s Ahead^®

• Retail sales rose at a strong clip in the final month of Q3, both in nominal and real terms, signaling that US consumers, despite concerns about the future continue to spend.
• Although households pulled back on purchases of vehicles, furniture, and electronics after an early summer spurt, they continued to spend on most everything else over the July-September span.
• Tracking data ahead of the November FOMC meeting continue to reveal strength in the US economy.
• Consumers, a critical engine of the economy, continue to spend as the labor market remains healthy, and overall inflation is rising at a far slower pace than before.
• Importantly, the uptick in jobless claims over the last few weeks largely reflects an increase in unemployment filings in states impacted by recent hurricanes, not labor market weakness.
• These readings, as well as sticky core inflation (total less food and energy) readings suggest the Fed can cut interest rates by 25bp in November.
• Remaining data releases – PCE inflation, personal income, real GDP, and employment – would have to be extremely disappointing for the Fed cut by more than 25bp.
• Additionally, if there are continued powerful upside surprises in the labor market and growth, and inflation stops cooling then the Fed could even consider skipping the November meeting.
• Still our expectation remains that the Fed will cut rates by 25bp in November and again by 25bp in December. The terminal rate likely will be just above 3 percent and achieved around this time in 2025.

Report Highlights

Nominal retail sales surprised markets by rising 0.4 percent month-over-month in September. The consensus was for a 0.3 percent increase. Real retail sales, computed by deflating nominal sales by the consumer price index (CPI), rose by 0.3 percent in the month, and jumped by 4.0 percent annualized in Q3.

Consumers did pull back from purchasing durable items like motor vehicles, furniture, and electronics in September after a spike in purchases early in the quarter. However, households splurged on most other types of goods.

Spending on groceries were outsized in September, which might have reflected panic buying ahead of the East- and Gulf-Coast port strikes and two hurricanes that hit the southeast region of the US.

Still, households gobbled up goods at nonstore retailers, general merchandise stores, sporting goods, clothing, pharmacy stores, and building materials outfits.

Regarding services, consumers continued to splurge on visits/ordering from restaurants and bars.

Spending and even economic output in October could be more modest given a rapid end to the port strikes and the shock of two major hurricanes. Since 1980, hurricanes have caused roughly $60 billion in economic losses per year, or the equivalent cut to real GDP growth of 0.3 percentage point.

However, the hurricane effects will reverse as rebuilding efforts get underway. Ultimately, the economic hit from hurricanes typically is more than offset overtime as impacted consumers repurchase lost items, and businesses and governments invest to repair damaged infrastructure.