AgFin Australia

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

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.