WASHINGTON – American consumers ramped up their spending last month in a sign of robust health heading into the crucial holiday shopping season.
Retail sales rose 0.8 per cent in October, after an upwardly-revised 1 per cent gain in September, the Commerce Department said Tuesday. The two-month increase was the largest since the spring of 2014.
The numbers suggest that the economy may grow more quickly in the final three months of the year than many economists had expected. Retail sales are closely watched as a sign of consumer health. Consumer spending makes up about 70 per cent of the economy.
Steady hiring and emerging signs of solid pay increases have made Americans more confident and willing to spend. The unemployment rate fell last month to a low 4.9 per cent and in October, workers saw the biggest annual pay gain since the end of the recession.
And while many companies, such as Dunkin Donuts, blamed their own weak sales figures in the late summer and fall on consumer concerns surrounding the election, Tuesday’s figures show that the presidential campaign had little impact overall.
“If electoral uncertainty were restraining activity prior to last Tuesday, it is nowhere apparent in the consumer spending data,” JPMorgan Chase economist Michael Feroli said.
Revisions to September and August data indicate that consumers spent more than previously estimated in the July-September quarter, Feroli said. That means growth in the third quarter may have been as high as 3.2 per cent, he estimated, above the 2.9 per cent figure reported last month.
Some of the biggest sales increases were in autos and gas, with higher prices boosting gas station sales. Even excluding those categories, however, sales rose 0.6 per cent in October and 0.5 per cent the previous month.
Auto sales rose a healthy 1.1 per cent, though many dealers relied on steep discounts. Sales of home and garden supplies also rose 1.1 per cent in October, a positive sign that more Americans are remodeling and expanding their homes.
Home Depot, the nation’s biggest home improvement chain, upped its outlook for the year Tuesday after beating Wall Street expectations handily. Customer transactions jumped, as did the amount they spent on each visit, the company said.
Most other retailers also saw healthy increases: Grocery stores, health and personal care outlets, sporting goods retailers, clothing stores, and online and catalogue retailers all reported strong sales.
Online and catalogue retailers are continuing to seize market share from older-line outlets such as department stores. Online and catalogue sales have increased 12.9 per cent in the past year, much faster than the 4.3 per cent gain for all retailers. Department stores, meanwhile, have seen their sales plunge 7.3 per cent in the past 12 months.
Furniture stores were one of the few to report a drop in October, with sales falling 0.9 per cent.
Steady hiring may be boosting spending. Employers have added about 175,000 jobs a month this year, down from last year’s pace but still enough to push unemployment even lower over time.
That appears to be boosting consumer confidence, which has been mostly healthy in recent months. A measure of consumer sentiment by the University of Michigan rose in the first half of November.
Even with solid growth in the October-December quarter, the economy has been weak this year. It expanded at just a 1.1 per cent pace in the first six months of 2016. It accelerated to a 2.9 per cent pace in the July-September quarter.
Even with a healthier expansion in the fourth quarter, growth may not reach 2 per cent for the full year.