U.S. retail sales rose more slowly than expected in September, suggesting that consumers may be becoming more cautious amid a cooling labor market and the ongoing impact of broad import tariffs.
The report, which serves as a key indicator of consumer spending — responsible for more than two-thirds of U.S. economic activity — had been delayed by the record-long government shutdown. Some analysts say this lag may mean the data no longer reflects the most current behavior of American shoppers.
The Federal Reserve is closely reviewing this backlog of delayed economic data ahead of its interest rate decision next month. Reports suggest policymakers remain divided on whether to cut rates again to support the job market or hold steady until fresher economic information becomes available.
The Fed previously lowered rates by 25 basis points in both September and October, bringing the target range to 3.75%–4%. Markets are increasingly confident that another rate cut is coming in December, with CME’s FedWatch Tool showing about an 85% probability of a further quarter-point reduction.
Wall Street is also monitoring the health of household spending as the holiday shopping period ramps up, beginning with heavy Black Friday and Cyber Monday promotions.
According to the Commerce Department’s Census Bureau, retail sales — not adjusted for inflation — rose 0.2% in September, following a 0.6% increase in August. Economists had expected a 0.4% gain. Year over year, sales grew 4.3%.
Excluding autos, gasoline, building materials, and food services, “core” retail sales increased just 0.1%, compared to a revised 0.6% rise in August and a forecast of 0.4%. These core numbers align more closely with the consumer-spending component of U.S. GDP.
Stephen Brown, Deputy Chief North America Economist at Capital Economics, noted that while the softer retail sales data will not derail third-quarter results, consumption is likely to slow sharply in the fourth quarter due to the shutdown’s effect on October spending.
In a separate report, U.S. producer prices in September came in broadly in line with forecasts. Higher costs for gasoline, motor vehicles, and meats drove the increase, while service prices remained flat after dipping in August.
Headline PPI rose 0.3% month-over-month, compared to a 0.1% decline in August, and held steady at 2.7% year-on-year. Core PPI came in at 0.1% month-over-month and 2.6% annually, slightly below expectations.
Analysts at Vital Knowledge said the softer retail and core PPI readings carry a “dovish” initial signal but are likely too outdated to meaningfully shift the economic outlook. They added that a Fed rate cut next month appears “very likely,” though investors should pay close attention to the central bank’s forward guidance, which may take a more hawkish tone.
