FinancemacroeconomyConsumer Spending
Retail sales rose slightly in September as spending slowed.
The U. S.Commerce Department’s delayed September retail sales report, finally released after the government shutdown, painted a picture of an American consumer beginning to tap the brakes. A modest 0.2% increase from August marked a significant deceleration from the summer's more robust spending spree, which saw gains of 0. 6% in July and August and a full 1% in June.This data, which is not adjusted for inflation, suggests that the relentless pressure from high prices for groceries, rent, and tariff-hit goods is finally starting to crimp the resilience that has defined the post-pandemic shopper. While this retail snapshot—covering about a third of all consumer outlays, with the remainder flowing into services like travel and entertainment—points to a slowdown, it is not yet a collapse.In fact, economists project that overall consumer spending was still strong enough to propel the economy to a solid 3% annualized growth rate in the third quarter, a welcome acceleration from the sluggish 1. 6% pace of the year's first half.However, a closer look beneath the headline number reveals a more nuanced and concerning story. Much of the spending was driven not by discretionary desire but by necessity, with rising prices at gas stations and grocery stores acting as an invisible hand propping up the figures.A bright spot was a healthy 0. 7% gain in sales at restaurants and bars, a classic indicator of discretionary confidence, but this was offset by declines at clothing, electronics, and sporting goods stores, signaling a clear shift in priorities.The landscape is further complicated by a moribund labor market, as evidenced by ADP's report showing companies cut an average of 13,500 jobs per week in the four weeks leading to November 8. This weakening hiring trend, coupled with an unemployment rate that ticked up to 4.4% in September—the highest in nearly four years—creates a precarious foundation for future growth. As Oliver Allen of Pantheon Macroeconomics noted, 'The moribund labor market and ongoing drag on real incomes from tariff-induced price increases suggest that this slowdown is likely to be maintained.' The divergence in the economy is stark. Higher-income Americans, as tracked by Bank of America data and corroborated by retailers like Walmart, continue to drive gains, while lower-income shoppers are increasingly hunting for bargains and concentrating their strained budgets on essentials.The Bank of America Institute estimates that for the poorest third of households, wages grew a paltry 1% in October year-over-year, while the top third enjoyed a 3. 7% rise—a gap matching the widest in nearly a decade.This income stratification means the overall economic picture is a tale of two consumers. Meanwhile, inflationary pressures, while elevated, show signs of moderating.The Labor Department's Producer Price Index rose 0. 3% in September, pushed higher by a spike in gasoline costs, but the core reading, which excludes volatile food and energy, rose a more muted 0.1%. With wage growth averaging 3.8% in September, only modestly above the 3% inflation rate, many households are seeing their real purchasing power erode, a trend that is likely to weigh heavily on the crucial winter holiday season. The National Retail Federation may project holiday sales topping $1 trillion for the first time, but that optimism is tempered by the reality of households entering this period with weak income growth and inflation-adjusted bank balances that have flatlined, setting the stage for a cautious and highly competitive fourth quarter.
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