American shoppers are heading into the holiday season on a robust footing, buoyed by a strong labor market and high consumer confidence.
Retail sales increased 4.6% on the year to October, the Commerce Department said Wednesday. That pace far exceeds the rate of inflation and wage increases, and suggests consumers are confident about the economy and willing to funnel more of their income to spending rather than savings.
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Spending at restaurants, retail stores and online-shopping platforms rose 0.2% in October from the prior month, exceeding economists' expectations for a 0.1% gain and welcome news for retailers as they gear up for a competitive November and December.
Consumer spending on furniture, sporting goods, electronics and clothing all rose in October from the prior month. Bars and restaurants had their strongest month since January, with sales rising 0.8% on the month.
Consumer spending is a key driver of the U.S. economy, representing more than two-thirds of economic output. Americans have ramped up their spending in recent months, supported by low unemployment, high consumer confidence, expectations for potentially stimulative tax cuts in the coming monthsand a sense their personal finances are on a stronger footing.
Stock-market gains and high property valuations have helped to drive household net worth into record territory, and the saving rate fell to a 10-year low of 3.1% in September as Americans boosted spending on big-ticket items like cars and refrigerators.
Mia Canada, owner of gift wrapping boutique That's a Wrap! in Atlanta, Ga. said this holiday season is gearing up to be the best she's ever had. Ms. Canada, who began wrapping gifts from a shopping-mall kiosk in 2006 and opened a brick-and-mortar store in 2013, said "people are planning further out" than usual for the holidays this year. Early bookings are largely from businesses giving gifts to clients and staff, or offering gift wrapping services to staff as a holiday perk, the 45-year old said.
Although consumers are feeling bullish, many retailers have struggled in recent years to keep up with consumers' shift to buying clothes, electronics and other goods online. Some analysts cautioned Wednesday that ongoing competition in the retail sector could keep a lid on pricing.
"Lower selling prices, higher labor costs, and having to cover shipping costs will pressure margins, which is why we expect this holiday sales season to bring more cheer to consumers than to retailers," said Richard Moody, chief economist of Regions Financial Corp., in a note to clients.
Results have been mixed among U.S. retailers ahead of the key holiday shopping season. Last week, Macy's Inc.'s same-store sales fell 4% in its latest quarter, while Kohl's Corp. surprised analysts with a slight increase. Nordstrom Inc. reported a decline in overall same-store sales but a slight increase at Nordstrom Rack stores. TJX Cos., which operates TJ Maxx, Marshalls and HomeGoods stores, didn't increase its same-store sales in its third quarter for the first time since 2009.
Consumer spending data have been volatile in recent months due to the impact of Hurricanes Harvey and Irma, which hit parts of Texas and Florida in late summer and propelled rebuilding efforts. A surge in car purchases in September to replace storm-damaged vehicles moderated in October, while sales at gas stations declined 1.2% as the cost of gasoline pulled back from a spike in the aftermath of the hurricanes. Spending on building materials dropped 1.2% from September, after an increase due to storm repairs that month. Overall retail sales rose 1.9% in September, revised data showed.
For Federal Reserve policy makers, the last retail sales report they will see before their Dec. 12-13 policy meeting offers hopes of a strong holiday season to close out a year of relatively strong economic growth.At their September meeting, Fed officials penciled in one further rate increase this year, although some policy makers have expressed concerns about persistently soft inflation.
"I will be looking for signs that inflation is going to pick up, that inflation expectations have been increasing," Federal Reserve Bank of Chicago leader Charles Evans said Wednesday, adding his decision whether to support a rate increase next month will depend on these and other economic data.
The latest data on inflation, released after Mr. Evans' remarks Wednesday, showed the consumer-price index -- excluding the often-volatile prices of food and energy -- rose 1.8% from a year earlier. That was the strongest annual gain in core prices since April, and could give confidence to officials concerned about the risks persistently low wages and inflation pose to future spending and economic growth.
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(END) Dow Jones Newswires
November 15, 2017 14:29 ET (19:29 GMT)