U.S. retail sales increased solidly in September likely as lower gasoline prices gave consumers more money to spend at restaurants and bars, supporting the view that the economy maintained a strong growth pace in the third quarter.
The slightly stronger-than-expected rise in sales reported by the Commerce Department on Thursday also reflected sharp increases in receipts at clothing store outlets as well as miscellaneous store retailers.
Consumers boosted online purchases and spent more at health and personal care stores.
Solid Income Growth
Spending and the overall economy are being underpinned by solid income growth, ample savings as well as strong household balance sheets. Though labor market momentum has slowed, layoffs remain historically low, supporting wage gains.
Signs of the economy's resilience likely will not discourage the Federal Reserve from cutting interest rates again next month, but will cement expectations for a smaller 25-basis-point reduction in borrowing costs.
"Strong consumer spending in September suggests economic growth in the previous quarter was solidly above trend," said Jeffrey Roach, chief economist at LPL Financial. "Our baseline remains that the Fed will likely cut a quarter of a percent in both November and December."
Retail Sales Advanced
Retail sales rose 0.4% last month after an unrevised 0.1% gain in August, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would rise 0.3%. Estimates ranged from no change to an increase of 0.8%.
Retail sales advanced 1.7% on a year-on-year basis in September.
Gasoline prices dropped by about 12 cents per gallon between August and September, data from the U.S. Energy Information Administration showed.
Receipts at food services and drinking places, the only services component in the report, jumped 1.0%. That followed a 0.5% rise in August. Economists view dining out as a key indicator of household finances.
