US Retail Sales Stall in October, Undershooting Forecasts but Consumer Spending Holds Up

Market Overview

US retail sales unexpectedly stalled in October, delivering a flat reading that defied market expectations for modest growth. While the headline figure pointed to softer momentum in goods spending, broader indicators suggest consumer activity remained resilient at the start of the fourth quarter, even as rising living costs continue to pressure household budgets.

Data released Tuesday by the Commerce Department showed retail sales were unchanged month over month, following a downwardly revised 0.1% increase in September. Economists had anticipated a 0.1% rise, underscoring the downside surprise and adding to concerns about uneven consumer demand.

Why the Headline Missed Expectations

The retail sales report, which was delayed by the 43-day federal government shutdown, reflects purchases of goods rather than services and is not adjusted for inflation. Persistent price pressures—particularly for food, furniture, healthcare, and housing—appear to be constraining spending for a large portion of consumers.

Broad import tariffs have also pushed up the cost of many goods, further squeezing disposable income. These pressures are most acute for lower- and middle-income households, which economists say are increasingly forced to cut back on discretionary purchases.

A “K-Shaped” Consumer Economy Emerges

Despite the weak headline number, spending trends beneath the surface reveal a growing divergence across income groups. Analysts continue to describe the US economy as “K-shaped,” with higher-income households driving much of the discretionary spending.

Recent consumer data indicate that households earning $100,000 or more annually are continuing to spend freely on entertainment, clothing, air travel, and hotel stays. By contrast, lower-income households remain far more sensitive to rising living costs, limiting overall retail growth.

Core Sales Signal Underlying Strength

Notably, core retail sales—which exclude autos, gasoline, building materials, and food services—rose a strong 0.8% in October, rebounding sharply from a 0.1% decline in September. This category closely tracks the consumer spending component of GDP and suggests that underlying demand remains healthier than the headline figure implies.

The robust core reading supports the view that consumption is still contributing positively to economic growth, even as headline retail sales appear subdued.

Implications for Growth and Policy

Economists continue to expect consumer spending to have supported economic expansion in the third quarter. Prior to the retail sales release, the Atlanta Federal Reserve estimated that GDP grew at a 3.6% annualized pace in the July–September period, following a 3.8% expansion in the prior quarter.

The government is scheduled to release the delayed first estimate of third-quarter GDP next Tuesday, which should provide greater clarity on how consumption trends translated into overall economic performance.

For markets, the mixed retail picture reinforces expectations that the Federal Reserve will remain cautious. While resilient core spending argues against an abrupt slowdown, flat headline sales and uneven consumer health keep the door open for further policy easing if conditions soften.

Summary

US retail sales unexpectedly came in flat in October, missing forecasts and highlighting the strain rising living costs continue to place on consumers. However, a strong rebound in core retail sales suggests underlying demand remains intact, supported largely by higher-income households. As markets await delayed GDP data, the report reinforces a picture of uneven but still resilient consumer-driven growth heading into the final quarter of the year.

FAQ

1. Why were US retail sales flat in October?
Higher living costs, including food, housing, and healthcare, weighed on consumer spending, particularly among lower- and middle-income households.

2. What is the difference between headline and core retail sales?
Headline retail sales include all categories, while core retail sales exclude autos, gasoline, building materials, and food services, offering a clearer view of underlying consumer demand.

3. Why did core retail sales rise strongly?
Discretionary spending by higher-income households helped drive a sharp rebound, masking broader weakness in headline sales.

4. What does this mean for US economic growth?
Despite the flat headline number, strong core sales suggest consumer spending likely continued to support GDP growth in the third quarter.

5. How could this affect Federal Reserve policy?
The mixed data supports a cautious Fed stance, balancing resilient consumption against signs of strain among lower-income consumers.

Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or economic advice. Market conditions may change rapidly, and readers should conduct their own research or consult a qualified professional before making financial decisions.