Americans keep spending despite frustration over higher prices
Consumers ramped up their spending last month in a sign of a bustling economy as retailers prepare for the busy holiday shopping season as Americans continued to open up their wallets despite frustration over higher prices that have squeezed budgets.
Retail purchases rose 0.4% from September to October, which was a decline from the previous month of 0.8% but still a solid gain. The figures for September were revised upward, showing stronger momentum heading into the end of the year.
Most of the growth was driven by a 1.6% increase in auto sales but spending also climbed 2.3% at electronics and appliances stores and 0.7% at bars and restaurants.
"It's the same thing we've been seeing for quite a while," said Dan North, senior economist at Allianz Trade North America. "Nothing seems to keep the consumer down; they're plowing right ahead."
While Americans have been deeply frustrated at the rate of price increases over the last few years, inflation has and wage increases have outpaced price gains for 18 consecutive months, giving shoppers more wiggle room in their budgets.
Consumer confidence has also started to rebound recently, with the Conference Board's most recent index showing its largest gain since 2021. The share of people who expect a recession in the next 12 months also fell to the lowest level since 2022, indicating confidence in the economic outlook that helps households continue to spend money.
Consumer spending is the backbone of the U.S. economy, accounting for some 70% of total economic activity. In the third quarter than ran from July to September, spending increased at a 3.7% clip, powering the economy to solid growth of 2.8%.
Americans have continued to spend throughout the post-pandemic economic recovery, which has helped keep the economy growing despite higher interest rates from the Federal Reserve. Economists have found that shoppers are being more selective in their spending but growth has been steady overall.
The economy is also starting to get some relief from the weight of higher interest rates after the Fed has started to wind down its benchmark interest rate in an effort to boost the economy after signs of a slumping job market. The central bank after starting its cutting cycle with an aggressive half-point cut in September.
Economists and investors are expecting another quarter-point cut at the Fed's December meeting but chair Jerome Powell said the central bank is not in a hurry to bring rates down.
"The economy is not sending any signals that we need to be in a hurry to lower rates," Powell said on Thursday. "The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully."
The boost in spending comes as retailers are preparing for the holiday shopping season, which officially starts in about two weeks. The industry is expecting r
"There is absolutely a very positive feeling among consumers and retailers," North said. "Consumers have been doing great. They're in very good mood. I think we're looking at probably an above-normal growth rate in holiday sales."
The National Retail Federation said Thursday that a record of 183.4 million people are planning to shop in brick-and-mortar stores and online during the busy period between Thanksgiving and Cyber Monday.
Black Friday, the day after Thanksgiving, is expected to be the busiest day for shopping with 131.7 million people checking out in store or online. Americans have also continued a trend of getting their shopping started early trying to maximize budgets as they continue to deal with the impacts of higher prices.
NRF said 58% of consumers had already started their holiday shopping as of early November and had already completed about one-quarter of their planned purchases.
"October's pickup in retail sales shows a healthy pace of spending as many consumers got an early start on holiday shopping," NRF chief economist Jack Kleinhenz said. "October sales were a good early step forward into the holiday shopping season, which is now fully underway. Falling energy prices have likely provided extra dollars for household spending on retail merchandise."
NRF has also predicted shoppers will boost their spending in November and December by 2.5% to 3.5% compared to last year as shopping patterns return to historical norms after skyrocketing during the coronavirus pandemic. Holiday sales rose 9% in 2020 and 12.4% in 2021 after increasing an average of 3.6% annually in the decade prior.
