October retail sales hit their highest level in 8 months

U.S. retail sales posted the biggest increase in eight months in October, indicating that demand for goods is holding up overall despite decades-high inflation and a deteriorating economic outlook.

The Commerce Department said Wednesday that retail sales rose 1.3% in October from September, compared with a flat reading in September from August. Prices rose 0.4% in October from September, according to the department.

The government’s strong report contrasts with dismal numbers Wednesday from retail chain Target Corp., which reported surprisingly weak profits as its increasingly price-sensitive customers cut spending.

Overall, nine of 13 retail categories rose last month, according to the Commerce report, including firm results from car dealerships, grocery stores and restaurants. The value of gasoline station sales rose 4.1%, mainly due to higher prices at the pump.

The data shows consumers continue to be largely resilient and suggests the economy got off to a good start in the fourth quarter. This may complicate the argument made by several Federal Reserve officials for a slower pace of interest rate hikes in the coming months, but policymakers acknowledge that inflation remains far too high.

Growth in consumer and producer prices slowed more than expected last month, spurring a rally in stock and bond markets on hopes that the Fed will downgrade to lower increases as early as December.

After Wednesday’s retail report, yields on two-year Treasuries rose and U.S. stock futures remained lower.

Continuing signs show that cracks are forming in consumers’ ability to keep pace with the highest inflation in four decades. More households are relying on credit cards to pay their bills, with credit card balances nationwide jumping 15% in the July-September quarter from a year ago, the largest year-over-year increase in two decades, according to a report released Tuesday by the federal government. Reserve Bank of New York.

“Consumers are likely to turn to credit to support spending as wage growth lags inflation and high prices eat into the stock of savings,” said Jeffrey Roach, chief economist at LPL Financial.

Retailers are seeing the impact of inflation on their profits. Home Depot Inc.’s profit beat expectations last quarter, but was driven by higher prices rather than more transactions. Walmart Inc., meanwhile, raised its full-year forecast as U.S. shoppers flocked to its stores for discounts.

At the same time, Target warned that shoppers are backing down, “as customers’ buying behavior is increasingly impacted by inflation, rising interest rates and economic uncertainty,” the CEO Brian Cornell in a statement.

Many retailers, stuck with an overabundance of inventory, have rolled out deep discounts to try and get stock off their shelves for the crucial holiday season. Clothing store sales were little changed while department store sales fell 2.1%, according to the Commerce Department.

Other discretionary categories like electronics and sporting goods also fell, the department reported, suggesting that price cuts and weaker demand are weighing on sales value.

In addition to not adjusting for price increases, the retail sales report only captures a portion of spending on services, where Americans have moved more of their dollars. A more complete picture of October household demand, which includes spending on services and inflation-adjusted figures, will be released in two weeks.

Information for this article was provided by Augusta Saraiva, Joshua Robinson and Reade Pickert of Bloomberg News (WPNS) and Christopher Rugaber of The Associated Press.

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