Retail sales rose by 0.4% in October to $718.9 billion, surpassing economists’ expectations of a 0.3% gain. Although monthly growth slowed from September’s robust 0.8% increase, October marked the fifth-strongest month for retail sales in 2023.
- On a year-over-year basis, sales climbed 2.8%, up from September’s 2.0% growth and the fastest pace since July.
Sales Growth: Spending at electronics and appliance stores jumped by 2.3%, the strongest category performance. Motor vehicle and parts dealers saw a 1.6% rise in sales, reflecting continued demand for vehicles. Bars and restaurants posted a 0.7% increase, signaling steady consumer appetite for dining out. Home improvement and gardening stores also saw modest growth, with sales up 0.5%.
- On the flip side, online retailers experienced a surprising 1.6% decline in sales, their steepest drop this year. Furniture stores recorded a 1.3% decrease, while health and personal care stores saw sales shrink by 1.1%.
Outpacing Inflation: October’s retail sales growth notably outpaced inflation, marking the fifth time this year that monthly sales gains exceeded price increases. The Consumer Price Index (CPI) rose 0.4% in October, aligning with monthly retail sales growth, but annual inflation stood at 2.6%, slightly below the 2.8% year-over-year rise in retail sales.
- This marks only the second time in 2023 that sales growth has exceeded inflation on an annual basis, indicating a pickup in real consumer spending.
Bond Market: The stronger-than-expected retail sales figures sent bond yields higher, with the 10-year Treasury yield climbing five basis points to 4.48%, the highest level since May. These results, combined with a strong labor market and persistent inflationary pressures, reinforce the view that the economy remains resilient despite tighter monetary policy.
Bottom Line: The combination of resilient retail performance, rising bond yields, and inflationary pressures complicates the Federal Reserve’s outlook. While consumer spending continues to drive growth, the environment is not one that supports interest rate cuts.
