US retail sales dip by 0.1% in October fuels expectations of lower interest rates

Company News

by Glenn Dyer

The 0.1% drop in US retail sales for October has reinforced market belief that interest rates have halted their ascent, with the next move likely being a downward one—possibly in May.

Thanks to lower petrol prices, the decline in sales masked another robust month of sales and surpassed economists' expectations, who had predicted a 0.3% slide.

September's data was revised upward, revealing a 0.9% sales increase instead of the previously reported 0.7% rise.

Some economists attributed last month's slower pace to September's surge. Retail sales primarily consist of goods and are not adjusted for inflation.

While October's consumer price inflation remained unchanged on a headline basis, wholesale prices dropped by half a percent, reaching an annual rate of just 1.3%.

These three pieces of data prompted financial markets to start anticipating a rate cut in May, according to futures market pricing. Another cut is predicted for July.

Excluding automobiles, petrol, building materials, and food services, retail sales in October increased by 0.2%. September's data was also revised upwards to show these core retail sales rising by 0.7%, rather than the previously reported 0.6%.

Core retail sales closely align with the consumer spending component of GDP.

Consumer spending saw a surge in the third quarter, significantly contributing to the US economy's annualized growth rate of 4.9% (the first of three estimates). In the second quarter, the economy grew at a rate of 2.1%.

Economists suggest that the October data marks a solid start to the fourth quarter, with the true test coming in the following months, with the "Black Friday" sales surge after Thanksgiving, followed by the Christmas rush.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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