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U.S. retail sales fell less than forecast in October, a sign of relative resilience among consumers, even as several major retailers acknowledged that economic pressures are curbing spending ahead of the holiday season.
Retail sales, which include spending on groceries and gasoline, fell 0.1 percent last month, the Census Bureau said Wednesday, partly due to a price-driven decline in gasoline spending. Although it was the first monthly decline since March, it was below economists’ forecasts of a 0.3 percent decline and September’s rise was revised upward to 0.9 percent.
The retail control group, which excludes building materials, vehicle parts and gas station sales, rose 0.2 percent, meeting economists’ expectations. The value for September was revised upwards to 0.7 percent.
The data adds some weight to investors’ growing expectations of a so-called soft landing for the U.S. economy, despite a year and a half of interest rate hikes by the Federal Reserve that have pushed borrowing costs to multi-year highs.
Other data on Wednesday showed that wholesale inflation, a leading indicator of consumer price growth, eased in October thanks to lower gasoline prices. That was reflected in weaker-than-expected inflation data released on Tuesday, prompting traders to advance their estimates of when the Fed would begin cutting interest rates.
“The summer spending surge is fading,” said Kieran Clancy, senior U.S. economist at Pantheon Economics. “But household balance sheets remain in good shape, so we see no reason to expect a sudden collapse in spending in the foreseeable future.”
As inflation cools and consumer spending slows, some retailers are still reporting restrained spending in their stores, particularly on essentials.
Big-box retailer Target on Wednesday reported a 4.9 percent comparable sales decline in the third quarter, which it attributed to a continued decline in spending on non-basic items, particularly furniture and electronics.
Brian Cornell, Target’s chief executive, said consumers are “still spending” but are being forced to “compromise on their family budgets” as factors such as high interest rates, increased credit card debt and student loan repayments leave them with less discretionary income .
“This year we’ve seen more and more consumers delay spending until the last moment,” Cornell told analysts on Wednesday, as shoppers stretch their budgets until their next paycheck.
Do-it-yourself retailer Home Depot reported Tuesday that comparable sales fell 3.1 percent in the third quarter as spending on high-priced discretionary purchases remained low.
Investors will be watching Walmart closely for insights into the U.S. consumer when the world’s largest retailer reports results on Thursday.
Target also reported that customer traffic fell 4.1 percent in the third quarter, while the average “ticket” fell 0.8 percent year over year. Cornell said that across the industry, dollar sales were boosted by higher prices, but consumers were purchasing fewer items per trip.
Some retailers show better signs of managing consumer price sensitivity than others. TJX Companies, which owns discount retail chains TJ Maxx and Marshalls, reported better-than-expected results on Wednesday and raised its full-year outlook for profits and comparable sales.
“Customer traffic increased across all business lines, our overall apparel sales remained very strong and home sales were excellent and accelerated quarter-over-quarter compared to the second quarter,” Chief Executive Officer Ernie Herrman told analysts.
Target shares rose 17 percent in afternoon trading, on track for their biggest single-day jump since August 2019, as investors looked past the company’s declining sales and focused on earnings of $2.10 per share, which was well above Wall Street estimates of $1.48.
Walmart shares rose 0.9 percent and Home Depot rose 1.5 percent, while TJX fell 2.5 percent.