U.S. retail sales rose 0.8% in October

U.S. retail sales rose at a solid pace in October, though the gains were boosted by one-time factors such as hurricane recovery spending and higher gas prices.

Retail sales rose a seasonally adjusted 0.8% last month, following two months of slight declines, the Commerce Department reported Thursday. Excluding gasoline sales, which were inflated by higher prices, sales climbed 0.5%.

The figures suggest consumers are pulling back a bit on their spending, which could slow growth in the final three months of the year. Americans had lifted their spending over the summer and fall at the fastest six-month pace in four years. Yet business spending on machinery, computers and buildings barely increased in the July-September quarter, leaving consumers shouldering more of the burden of maintaining growth.

Some economists were disappointed by Thursday’s report. Excluding volatile categories such as gas, auto and food services, retail sales rose just 0.3%.

“This looks very much like the end of the boost from the tax cuts, and it strengthens our conviction that [economic] growth has peaked,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research note.

Most analysts forecast economic growth will slow in the final three months of the year, to a roughly 2.5% pace, after robust increases of 4.2% in the second quarter and 3.5% in the third.

Avery Shenfeld, managing director and chief economist of CIBC Capital Markets, is looking on the bright side. In Thursday commentary, he said consumer spending should “remain a healthy growth contributor for Q4 as a whole, helped by better wages and ongoing job growth,” even while the “impacts of tax cuts are fading from these numbers relative to what we saw in the spring.”

In an economic update from Oct. 4, CIBC Capital Markets forecasted U.S. real GDP growth of 1.9% for Q4, followed by 1.8% for Q1 2019. That compares to forecasts of 2% and 1.6% for Canada over the same periods.

Some of October’s spending gain was likely boosted by the impact of Hurricane Florence in September and Hurricane Michael last month. The government said it could not measure the precise impact of the two storms, but auto sales rose 1.1% in October, the most since March, as many Americans may have replaced cars destroyed by the hurricanes.

Home improvement and garden store sales increased 1%, the most since May, likely boosted by storm-related home repairs and preparations. On Tuesday, Home Depot breezed past all expectations for its most recent quarter and raised its annual profit expectations.

Gasoline station sales jumped 3.5%, the most in almost a year, largely because of rising prices at the pump. Yet prices have since declined and will likely continue to do so, as oil prices have fallen sharply this week. The average cost of a gallon of gas was US$2.67 on Thursday, down from US$2.89 a month earlier.

Nearly all types of retailers reported strong sales gains, a sign of consumer health. Clothing store sales rose 0.5% and sales at general merchandise stores, which include big box retailers such as Walmart and Target, also increased 0.5%. Electronics and appliance store sales rose 0.7%.

Restaurants and bars posted a rare decline for the third month in a row, falling 0.2%, following a sharper fall of 1.5% in September.

Staff, with files from The Associated Press

The Associated Press is an American not-for-profit news agency headquartered in New York City.