Retail sales lost ground in October

November 15, 2023

Retail sales fell for the first time since June, down -0.1% as September sales were revised higher. The nearly flat retail sales still beat consensus, a testament to the continued resilience of the consumer. After adjusting for inflation, retail sales fell by -0.2%. October was the first month that student loans came due, eating into over 26 million consumers' wallets.

Most categories saw modest dips during the month of October. The largest hits were big-ticket purchases such as motor vehicles and parts at -1%. Motor vehicles and parts dealers saw the first negative print since March on sales from automobile dealers. Higher rates have meant much more expensive loan terms.

Housing-related spending continued to struggle. Furniture has been particularly hard-hit in this mortgage winter, with sales off 2% in October and down 11.8% since October of last year. Higher bond yields have had average 30-year mortgage rates near or above 8% for most of October, the highest rates seen since 2000. Sales at building material, garden equipment and supply dealers fell 0.6%, the first negative reading since June.

Early holiday sales in October were not enough to keep up the pace of spending from the summer. Apparel sales were flat while sporting goods fell 0.8%. General merchandise store sales fell 0.2% on weak department store sales, down 1.2%.

Despite heavy promotion of e-commerce sales events during October, nonstore retailers' sales rose just 0.2% after a strong performance in September. Online sales were revised up to 1.4% in September.

The exceptions to the weakness during October were health and personal care stores, electronics, grocery stores and restaurants. Health and personal care store sales rose 1.1% in October as respiratory illnesses such as flu, covid-19 and RSV made their way through schools. Consumers are stocking their shelves with over-the-counter medicines to alleviate symptoms.

Sales at restaurants and bars rose 0.3% after rising an upwardly revised 1.6% in September. Adjusting for inflation, however, sales at restaurants were essentially flat. While sales at gasoline stations were down slightly, after adjusting for inflation, they were up by a wide margin. More consumers were out driving with another big month for those out on vacation. According to the KPMG Holiday Pulse Survey of consumers, shoppers are planning to spend more on services this holiday season such as vacations and restaurants.

Core retail sales, which excludes food, autos, building materials and gas station sales, rose just over 0.1% in September, in line with consensus. That is a sharp slowdown from the pace over the summer, which means slower consumption growth moving into the fourth quarter.