U.S. retail sales stagnate as inflation, rates hit consumers

U.S. retail sales stalled last month as shoppers grew more guarded about discretionary purchases amid the worst inflationary environment in decades and rising interest rates.

The value of overall retail purchases were little changed in September after an upwardly revised 0.4% gain in August, Commerce Department data showed Friday.

Excluding gasoline, retail sales were up 0.1%. The figures aren’t adjusted for inflation.

Seven of 13 retail categories declined last month, according to the report, including a drop in receipts at auto dealers, furniture outlets, sporting goods stores and electronics merchants.

The value of sales at gas stations fell 1.4%, reflecting cheaper fuel prices, but they’re now climbing.

It’s not clear the extent to which Hurricane Ian, which devastated Florida and parts of South Carolina late last month, impacted the data.

That likely kept local residents from dining out while encouraging them to stock up in advance of the storm.

The weaker retail sales data underscore how consumers are feeling a bigger pinch from rampant price pressures.

As inflation shows few signs of slowing, many Americans are still relying on credit cards and savings to keep up, and shelling out more on essentials leaves little leftover for discretionary purchases.

The Federal Reserve is expected to keep up its heightened pace of interest-rate hikes to quash demand across the economy, but the sales data suggest that’s already happening.

The value of receipts at building materials outlets dropped 0.4% after robust gains in the prior two months, underscoring the impact of higher borrowing costs.

Mortgage rates are currently the highest in two decades.

Risks are growing that tighter policy will tip the U.S. into a recession at a time when consumers are already reeling from inflation, which could make the downturn that much more painful.

“Retail sales were better than they looked in September, enough to satisfy the Fed that stiff rate hikes are warranted through the end of the year. Even so, momentum is slowing as economic uncertainty rises, and lower prices may have helped restrain select categories as retail inventories climb,” economist Andrew Husby wrote in a note for Bloomberg Economics.

Data out Thursday underscored the severity of the Fed’s inflation conundrum, with a key gauge of consumer prices jumping to a 40-year high last month.

Inflation is well-outpacing wage gains, and much of the advance was traced to jumps in the cost of food, shelter and medical care.

“Higher borrowing costs and elevated inflation – that is not yet showing any sign of easing – will remain headwinds for spending going forward,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a note.

Besides not being adjusted for price increases, the retail sales report only captures a glimpse of services spending, where Americans have been shifting more of their dollars.

A fuller picture of September household demand, which includes both services spending and inflation-adjusted figures, will be released later this month.

So-called control group sales – which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gasoline stations – increased 0.4% in September after an upwardly revised 0.2% advance in the prior month.