By Greg Heym, Brown Harris Stevens Chief Economist and host of Crossing The Line
Consumer spending rose 0.4% last month, slightly higher than the 0.3% Dow Jones forecast. Remember that this data isn’t adjusted for inflation, but since that only rose 0.2% last month this is still a pretty solid gain. Here are the other highlights:
- Spending gains were led by miscellaneous store retailers (+4%) and clothing stores (+1.5%). Miscellaneous store retailers include places like florists and pet stores.
- The biggest declines in spending were at electronics and appliance stores (-3.3%), and gas stations (-1.6%). It’s not surprising that sales at gas stations are down, as gas prices fell 4.1% in September.
- Over the past year retail sales are up 1.7%, while prices have risen 2.4%. That means that consumers continue to spend more money and get less stuff.
What’s really surprising is that consumer spending has remained decent, despite all the debt they’ve racked up. Just last week we learned the following:
- According to the NY Fed’s September Survey of Consumer Expectations, Americans haven’t been this worried about missing a minimum debt payment since April 2020.
- The number of consumers with auto loans who owe more than their vehicles are worth is growing according to Edmunds.com. The average amount owed on these “upside-down” loans has reached a record $6,458.
- The Fed also reported last month that delinquency rates on auto loans are now substantially higher than pre-pandemic levels.
How will this better-than-expected retail sales report impact the Fed’s next move? After the September jobs number came in well above expectations, the chances of the Fed cutting rates by 0.50% in November went down sharply. This report won’t change that, but a much weaker-than-expected October employment report could. I don’t expect that to happen, so I’m sticking with 25 basis point cuts in November and December.
Mortgage Rates Hit 6.44%
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The average conforming mortgage rate rose for the third straight week to 6.44%, up from 6.32% the previous week. Since falling to 6.08% at the end of September, rates are up 0.36%. You can put most of the blame for that increase on the blow away September employment report, and the higher-than-expected September CPI reading. Add the retail sales data to that picture and you have an economy that’s still running pretty hot.
As we’ve mentioned before, the road to lower mortgage rates will be a bumpy one, as any data surprises can have a major impact on rates. Remember, rates tend to rise at a much faster pace than they decline.