US retail sales rose 0.8% in September, the Commerce Department reported this week, comfortably beating the 0.3% increase economists polled by FactSet had expected and extending an upward revision to August's gain, now put at 1.3%, according to an Associated Press account of the data. But the headline number flattered the underlying picture: stripping out spending at gas stations, sales rose just 0.2%, suggesting that much of the month's strength came from paying more at the pump rather than buying more elsewhere.
Gas station sales jumped 6.4% as prices at the pump climbed to an average of about $4.33 a gallon, according to AAA, up from under $3 before fighting intensified in the Middle East. Elsewhere, the gains were more modest: furniture and home furnishings sales rose 1.3%, restaurant spending rose 1.1%, electronics and appliances rose 0.6%, and online retailers rose 0.3%. Clothing and accessories sales were flat. The figures are not adjusted for inflation.
Inflation outpacing paychecks
The spending data arrived alongside a reminder of why some economists are cautious about reading too much into it. Consumer prices rose 3.7% in September from a year earlier, up from 3.4% in August, with prices climbing 0.6% for the month — the largest monthly gain in five months. Toys, new and used cars, sporting goods and shoes were among the categories seeing the fastest price increases.
The September jump was almost entirely due to rising gasoline prices.
Michael Pearce, Oxford Economics
Pearce said he still expects consumer spending to run at a 3.3% annualized pace for the third quarter, but sees momentum fading heading into the holiday season as higher prices weigh on shoppers. Natalie Kotlyar of BDO was more cautious still, saying part of the gain is simply higher prices, and that many shoppers are leaning on savings and promotions to stretch their budgets — advice she said retailers should heed by protecting margins and keeping inventory flexible.
The spending report lands against a softening labor market: employers added just 29,000 jobs in September, and the unemployment rate ticked up. The job market has held up through a string of shocks this year, including tariffs and the conflict in the Middle East, but with paychecks not keeping pace with prices, economists say it is unclear how much longer resilient spending can last.
