Summary: US retail sales down 0.1% in October, fall smaller than expected; annual growth rate slows to 2.5%; NAB: suggestive of still-positive consumption growth heading into holiday season; US Treasury yields up noticeably; 2024 rate-cut expectations soften; lower sales in seven of thirteen categories; motor vehicle & parts dealer sales largest single influence on month’s result.
US retail sales had been trending up since late 2015 but, commencing in late 2018, a series of weak or negative monthly results led to a drop-off in the annual growth rate below 2.0%. Growth rates then increased in trend terms through 2019 and into early 2020 until pandemic restrictions sent it into negative territory. A “v-shaped” recovery then took place which was followed by some short-term spikes as federal stimulus payments hit US households in the first and second quarters of 2021.
According to the latest “advance” numbers released by the US Census Bureau, total retail sales declined by 0.1% in October. The fall was not a large as the 0.3% decrease which had been generally expected but it contrasted with September’s 0.9% rise after it was revised up from 0.6%. However, on an annual basis, the growth rate slowed from September’s revised rate of 4.1% to 2.5%.
“The control group, which feeds more directly into consumption data, was in line with expectations at +0.2%, and there were small upward revisions to the September data,” said NAB senior economist Taylor Nugent. “Strength in real consumption through the third quarter always looked unsustainable but this is suggestive of still-positive consumption growth heading into the holiday season.”
The figures were released at the same time as the latest producer prices index report and US Treasury bond yields rose noticeably on the day. By the close of business, the 2-year Treasury yield had added 8bps to 4.92%, the 10-year yield had gained 9bps to 4.54% while the 30-year yield finished 7bps higher at 4.70%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months softened. At the close of business, contracts implied the effective federal funds rate would average 5.33% in December, in line with the current spot rate, 5.33% in January and 5.31% in March. November 2024 contracts implied 4.615%, 71bps less than the current rate..
Seven of the thirteen categories recorded lower sales over the month. The “Motor vehicle & parts dealers” segment provided the largest single influence on the overall result, falling by 1.0% over the month and subtracting 0.18 percentage points from the total.
The non-store segment includes vending machine sales, door-to-door sales and mail-order sales but nowadays this segment has become dominated by online sales. It now accounts for nearly 17% of all US retail sales and it is the second-largest segment after vehicles and parts.