Americans are spending big on cars and gadgets—and going into debt to do it
Americans stepped up their spending at retailers last month in the latest sign that healthy consumer spending is driving the economy’s steady growth.
Retail sales rose 0.4% from September to October, the Commerce Department said Friday, a solid increase though less than the previous month’s robust 0.8% gain.
A 1.6% jump in sales at auto dealers drove much of the gain. Purchases climbed 2.3% at electronics and appliances stores and 0.7% at restaurants and bars. Though some of October’s rise in retail sales reflected higher prices, it mainly indicated increased purchases.
Sales in some categories fell — furniture stores, clothing outlets and drug stores, among them — though economists said that weakness likely resulted, at least in part, from last month’s hurricanes. Sales at home and garden stores rose, potentially reflecting rebuilding activity after the storms.
“The moderation in the pace of price growth is allowing consumers to ratchet up spending,” said Tim Quinlan, an economist at Wells Fargo. “People may not love how much it costs to go out to eat, but their bar and restaurant spending is growing faster than prices are.”
Friday’s report arrives as retailers are poised to enter the critically important holiday shopping season in less than two weeks. Analysts envision a solid holiday shopping season, though perhaps not as robust as last year’s, with many shoppers under pressure from overall still-high prices despite the easing of inflation.
The latest retail sales figures suggest that the economy is growing briskly again in the current October-December quarter, after having expanded at a sturdy 2.8% annual rate in the previous quarter. Since peaking at 9.1% more than two years ago, inflation has sunk to 2.6%, not far above pre-pandemic levels. And Americans’ take-home pay, on average, has surpassed inflation for about 18 months.
Still, the post-pandemic inflation spike has left prices about 20% higher than they were three years ago and dimmed Americans’ outlook on the economy. That was a key reason why Donald Trump was able to capitalize on public discontent with the Biden-Harris administration and recapture the White House in last week’s election.
Despite high price levels, though, Trump inherits an economy in which spending is strong, growth is solid and unemployment low.
Other recent economic reports have also pointed to a healthy economy. In a sign that households, whose purchases drive most of the economy, will continue spending, the Conference Board’s most recent consumer confidence index posted its biggest monthly gain since 2021. The proportion of consumers who expect a recession in the next 12 months dropped to its lowest point since the board first posed that question in 2022.
One cautionary note is that grocery-store sales barely rose last month, a sign that many Americans may still be struggling to adapt to food prices that are still much higher than they were three years ago.
Lorraine Thompson, who was food shopping this week at a Walmart in Secaucus, New Jersey, said she’s not noticing any slowdown in inflation.
“Everything is high,” she said. “The meat, the cheese.”
Thompson said she’s been buying less cheese and has been food shopping more at Walmart because she thinks the prices there are lower than at other supermarkets.
The National Retail Federation has predicted that shoppers will increase their spending in November and December by between 2.5% and 3.5% over the same period a year ago. During the 2023 holiday shopping season, spending had surged by a stronger 3.9% from 2022.
Some retailers say they expect consumers to spend more freely in the coming months. Affirm, a buy-now, pay-later company that has been expanding as more consumers seek online installment loans, last week reported that growth in its active consumers accelerated for a third straight quarter to nearly 20 million.
“Everything we see suggests the consumer feels like they want to be out spending,” Michael Linford, Affirm’s chief operating officer, told The Associated Press.
Analysts will be dissecting quarterly results next week from Walmart and Target, among others, to gauge how shoppers are navigating still-high prices and to assess their mood after a presidential race that pivoted in large part on voters’ discontent with the economy.
One of the first major retailers to report fiscal third quarter earnings was Home Depot, which continues to grapple with a pullback in spending from customers. But the retrenchment was less severe than in the past, and its performance beat Wall Street’s expectations.
Home Depot’s CEO Edward Decker said that Trump’s proposed high tariffs on imports, if implemented, would intensify pressure on the company. But he added that Home Depot sources well more than half its goods domestically and elsewhere in North America.
