US retail sales fall less than expected in sign of consumer resilience

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US retail sales fell less than forecast in October, in a sign of consumer’s relative resilience, even as several big retailers acknowledged economic pressure is crimping spending ahead of the holiday season.

Retail sales, which include spending on food and petrol, fell 0.1 per cent last month, the Census Bureau said on Wednesday, spurred in part by a price-related drop in spending on petrol. Although it was the first monthly decline since March, the figure was less than economists’ forecasts for a 0.3 per cent decline and September’s increase was revised higher to 0.9 per cent.

The retail control group, which excludes building materials, motor vehicle parts and petrol station sales, rose 0.2 per cent, matching economists’ expectations. September’s figure was revised up to 0.7 per cent.

The data lends some weight to the growing expectation among investors of a so-called soft landing for the US economy, despite a year and a half of Federal Reserve interest rate rises that have pushed borrowing costs to multiyear highs.

Other data on Wednesday showed wholesale inflation, a leading indicator of consumer price growth, moderated in October thanks to lower petrol prices. That echoed softer than expected inflation data released on Tuesday that prompted traders to bring forward their estimates of when the Fed would start cutting rates.

“The summer spending surge is fading,” said Kieran Clancy, senior US economist at Pantheon Economics. “But households’ balance sheets remain in decent shape, so we see no reason to expect a sudden collapse in spending anytime soon.”

As inflation cools and consumer spending moderates, some retailers are still reporting cautious spending at their stores, particularly for discretionary items.

Big-box retailer Target on Wednesday reported comparable sales declined 4.9 per cent in its third quarter, which it attributed to a continued decline in spending on discretionary categories, particularly furniture and electronics.

Brian Cornell, Target’s chief executive, said consumers were “still spending” but forced “to make trade-offs in their family budgets” because of factors including high interest rates, increased credit card debt and student loan repayments leaving them with less discretionary income.

“This year, we’ve seen more and more consumers delaying their spending until the last moment,” Cornell told analysts on Wednesday, as shoppers stretch their budgets until the next pay cheque.

Do-it-yourself retailer Home Depot on Tuesday reported comparable sales decreased 3.1 per cent in the third quarter as spending for big-ticket discretionary purchases remained soft.

Investors will be paying close attention to Walmart for insights on the US consumer when the world’s largest retailer reports results on Thursday.

Target also reported customer traffic declined 4.1 per cent in the third quarter, while the average “ticket” decreased 0.8 per cent from a year ago. Cornell said that, across the industry, dollar sales were being propped up by higher prices, but consumers were buying fewer items per trip.

Some retailers show better signs of navigating consumers’ price sensitivity than others. TJX Companies, which owns discount retail chains TJ Maxx and Marshalls, reported better than expected results on Wednesday and raised its full-year outlook for earnings and comparable sales.

“Customer traffic was up across all divisions, our overall apparel sales remained very strong, and home sales were outstanding and accelerated sequentially versus the second quarter,” chief executive Ernie Herrman told analysts.

Target shares were up 17 per cent in afternoon trading, putting them on course for their biggest daily jump since August 2019, as investors looked past the company’s declining sales and focused on its earnings of $2.10 a share, which came in well ahead of Wall Street estimates of $1.48.

Walmart shares added 0.9 per cent and Home Depot gained 1.5 per cent, while TJX was down 2.5 per cent.