US retail sales rose slightly in September, adding to months of big gains

U.S. retail sales showed modest growth in September as consumers pulled back on spending after a summer surge, according to delayed government data released Tuesday. The Commerce Department reported a 0.2% increase from the previous month, a notable deceleration following more robust increases of 0.6% in July and August and 1% in June.

The report, delayed more than a month due to the recent government shutdown, offers a mixed picture of consumer activity heading into the crucial holiday shopping season. The government is not expected to catch up with its normal economic reporting schedule until late December.

While consumer spending remained positive, the moderation suggests households are becoming more cautious amid persistent inflation pressures. The retail sales figures, which are not adjusted for inflation, indicate many Americans struggled with high prices for necessities like groceries and rent, as well as imported goods affected by tariffs.

Much of the spending increase was driven by higher prices at gas stations and grocery stores. However, restaurants and bars saw a healthy 0.7% gain in September, indicating some consumers still had discretionary income to spend. Meanwhile, clothing, electronics, and sporting goods retailers experienced sales declines.

Economists project that higher spending levels should help lift the economy’s growth to approximately 3% annual rate in the July-September quarter, a significant improvement from the sluggish 1.6% expansion seen in the first half of 2023.

Yet warning signs are emerging for the final quarter of the year. “The moribund labor market and ongoing drag on real incomes from tariff-induced price increases suggest that this slowdown is likely to be maintained,” said Oliver Allen, an economist at Panthenon Macroeconomics.

Supporting this cautious outlook, payroll processor ADP reported that companies cut an average of 13,500 jobs weekly in the four weeks ending November 8. This signals that hiring may have weakened since September, when the government reported 119,000 jobs were added.

The uncertainty is further illustrated by rising unemployment, which reached 4.4% in September—the highest level in nearly four years. This upward trend could potentially drag down consumer spending and broader economic growth if conditions worsen.

The retail data reveals a growing disparity between consumer segments. Higher-income Americans appear to be driving much of the spending gains, according to Bank of America data and retailer reports. Meanwhile, lower-income shoppers increasingly seek bargains and focus more on necessities.

Not all retail news is concerning, however. Some retailers are reporting positive results, with Best Buy and Dick’s Sporting Goods both releasing encouraging reports on Tuesday. Best Buy even raised its sales and profit forecasts for the year.

The National Retail Federation projects holiday sales will exceed $1 trillion for the first time, though growth is expected to be modest compared to last year. This seasonal spending period, which typically accounts for up to a fifth of annual retail revenues, begins this weekend.

On the inflation front, the Labor Department reported that wholesale prices rose 0.3% in September from August, and 2.7% year-over-year. The monthly increase was largely driven by higher gasoline costs. Core prices, which exclude volatile food and energy costs, rose just 0.1% in September and 2.6% from a year earlier—lower than expected and suggesting inflation pressures may be easing.

This could influence the Federal Reserve’s decision on interest rates at its next meeting, with economists suggesting a rate cut becomes more likely with inflation showing signs of moderation.

The economic picture is further complicated by slowing wage growth. While wages rose 3.8% in September from a year ago, this is only marginally above the 3% annual inflation rate. For many Americans, particularly lower-income and older workers, wages are rising more slowly than prices.

Bank of America Institute estimates that for the poorest one-third of households, pay grew just 1% in October from a year earlier, while the highest one-third saw wages rise 3.7%. This gap between income groups is the widest in nearly a decade, according to the bank’s analysis of anonymous customer data.

A separate JPMorgan Chase Institute report found that typical household incomes have retreated to levels last seen in the early 2010s, following the 2008-2009 recession. “Households are going into the end of the year with weak income growth and bank balances that remain flat, after adjusting for inflation,” the report noted.