Retail sales bump 0.8% in September, but a large chunk of spending went to paying for gas

Gas prices drive the increase

The Commerce Department reported that retail sales increased 0.8% in September, following a revised 1.3% rise in August. Economists had expected a 0.3% increase, according to FactSet. Sales at gas stations rose 6.4%. Without gas stations, retail sales were up 0.2%; the figures do not account for inflation, which also rose in September.

Michael Pearce, chief U.S. economist at Oxford Economics, wrote that the overall jump was “almost entirely due to rising gasoline prices.” He estimated consumer spending was still on track for a 3.3% annualized gain in the third quarter, but expected it to lose momentum ahead of the holidays.

Sales vary across stores

Furniture and home furnishings stores recorded a 1.3% increase, while electronics and appliance stores rose 0.6%. Online retailers were up 0.3%, and clothing and accessories stores were unchanged from August.

The report provides only a partial view of consumer spending and excludes activities such as travel and hotel stays. Restaurants, its only services category, posted a 1.1% increase.

Inflation strains household budgets

AAA said regular gasoline averaged $4.33 per gallon on Thursday, after rising overnight. Before the war began, gas had cost less than $3 per gallon. The Labor Department reported that consumer prices were 3.7% higher in September than a year earlier, compared with 3.4% in August. Prices rose 0.6% from August, the largest monthly increase in five months, as the cost of items including toys, cars, sporting goods and shoes climbed.

Natalie Kotlyar, a retail and consumer products practice leader at BDO, said shoppers were using savings and promotions to manage higher prices. She cautioned that sales growth alongside paychecks that fail to keep up with prices cannot continue indefinitely, and advised retailers to protect margins and keep inventory flexible.

Jobs and spending outlook

Many Americans have continued spending despite higher gas prices tied to renewed fighting in the Middle East. Pearce expects rising prices to weigh more heavily on consumers as the holiday shopping season nears.