Americans increased their spending at retailers last month, signaling that robust consumer activity continues to support steady economic growth.
Retail sales rose 0.4% from September to October, according to the Commerce Department’s report on Friday. While this was slightly below September's strong 0.8% gain, it still marked a solid performance.
A 1.6% jump in auto sales contributed significantly to the rise, along with a 2.3% increase at electronics and appliance stores and a 0.7% uptick at restaurants and bars. While some of the retail sales growth was driven by higher prices, the primary driver was greater purchasing activity.
Not all sectors saw gains, however. Sales declined at furniture stores, clothing outlets, and drugstores, with economists suggesting that hurricane-related disruptions likely played a role. Meanwhile, sales at home improvement stores increased, possibly due to rebuilding efforts after the storms.
“The slower pace of price increases is giving consumers breathing room to spend more,” said Tim Quinlan, an economist at Wells Fargo. “People might still feel the pinch when dining out, but spending on bars and restaurants is growing faster than inflation.”
The report arrives as retailers gear up for the critical holiday shopping season, set to begin in less than two weeks. Analysts expect holiday spending to rise moderately compared to last year, reflecting ongoing pressure from elevated prices despite easing inflation.
Retail figures suggest the economy is poised for another strong quarter of growth, with the annualized expansion rate in the current October-December period expected to match or surpass the 2.8% achieved last quarter. Inflation, which peaked at 9.1% over two years ago, has since cooled to 2.6%, while Americans’ take-home pay has outpaced inflation for roughly 18 months.
Nevertheless, the lingering effects of pandemic-era inflation, which has driven prices nearly 20% higher over the past three years, continue to shape public sentiment about the economy. This dissatisfaction contributed to Donald Trump’s success in last week’s presidential election, as he leveraged concerns about the Biden administration’s handling of the economy to regain the White House.
Despite high prices, Trump will inherit an economy characterized by strong consumer spending, steady growth, and low unemployment.
Recent economic data has reinforced this positive picture. The Conference Board’s consumer confidence index recorded its largest monthly gain since 2021, and fewer Americans now expect a recession within the next 12 months than at any time since the question was first tracked in 2022.
Still, challenges remain. Grocery sales showed minimal growth last month, reflecting the strain of persistently high food prices.
“Everything is expensive—the meat, the cheese,” said Lorraine Thompson, a Walmart shopper in Secaucus, New Jersey. Thompson noted she’s been buying less cheese and shopping at Walmart more frequently due to perceived lower prices compared to other stores.
The National Retail Federation predicts holiday spending in November and December will grow by 2.5%-3.5% compared to last year, slightly below the 3.9% increase seen during the 2023 holiday season.
Some retailers are optimistic about consumer spending in the months ahead. Affirm, a buy-now, pay-later service, reported accelerating growth in active users, reaching nearly 20 million last quarter. “Consumers seem eager to keep spending,” said Michael Linford, Affirm’s chief operating officer.
Next week, major retailers like Walmart and Target will release earnings reports, providing further insights into consumer behavior and how shoppers are managing elevated prices.
Home Depot, which recently reported earnings that exceeded Wall Street expectations, continues to navigate a pullback in customer spending. CEO Edward Decker noted that Trump’s proposed tariffs on imports, if enacted, could increase pressure on the company. However, he emphasized that more than half of Home Depot’s goods are sourced domestically or from North America, mitigating some of the potential impact.
