U.S. retail sales unexpectedly posted the first decline in seven months, suggesting consumers are starting to become shaky as the main pillar of economic growth and potentially bolstering the case for a third straight Federal Reserve interest-rate cut. Treasuries rose and U.S. stock futures fell.
The value of overall sales fell 0.3% in September from the prior month after an upwardly revised 0.6% increase in August, Commerce Department figures showed on Oct. 16. The median estimate in a Bloomberg survey called for a 0.3% advance.
Sales in the “control group” subset, which some analysts view as a more reliable gauge of underlying consumer demand, were little changed, missing projections for a 0.3% increase. The measure excludes food services, car dealers, building-materials stores and gasoline stations.
The surprise drop in retail sales is the first decline since February and may indicate cracks are forming in the consumer spending that’s propped up economic growth in recent months. Together with weaker business investment and manufacturing, along with a lingering trade war, weaker consumption would increase risks to the nation’s longest economic expansion on record and complicate President Donald Trump’s re-election prospects in 2020.
Despite solid income growth and other favorable fundamentals for consumers, “there were a lot of gloomy headlines” in September on topics such as trade talks, said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC. “People might have gotten a little cautious.”
While consumer spending and job gains were likely solid overall during the third quarter, the latest figures, as well as the employment report earlier this month, suggest a loss of momentum heading into the last part of 2019. With global weakness and trade headwinds already leading Fed officials to lower interest rates at the last two meetings, some policymakers may see reason to cut again at the central bank’s next gathering Oct. 29-30 in Washington.
Stanley said more recent figures have shown improved consumer sentiment and trade tensions have eased a bit, which may aid spending. ”There’s good reason to believe that the consumer is alive and well,” he said.
The retail sales report showed seven of 13 major categories posted declines. Nonstore retailers, which include online shopping, fell 0.3%, the biggest drop since December. General merchandise stores were down 0.3%, building materials fell 1% and sporting goods, hobby, musical instrument and book stores dropped 0.1%.
Increases were led by apparel, health and personal care, and furniture and home furnishings. One sector, electronics and appliance stores, was unchanged.
Filling-station receipts decreased 0.7%, the report showed, after energy prices dropped in last week’s consumer-price data. The retail figures aren’t adjusted for price changes, so sales could reflect changes in gasoline costs, sales, or both.
Spending at automobile dealers dropped 0.9%, the biggest decline since January, after increasing 1.9% in the previous month. Industry data from Wards Automotive Group previously showed the volume of auto sales rose for a second month in September.
Excluding automobiles and gasoline, retail sales were little changed, after a 0.4% gain the previous month.