- Retail sales posted another strong gain in September, up 0.7%, with upward revisions to growth in August and July.
- For the entire third quarter retail sales were up almost 7% annualized as consumer continue to spend.
- Industrial production rose 0.3% in September, with manufacturing output up 0.4%.
- For the third quarter as a whole industrial production was up 2.5% annualized. But mining and utilities drove the increase for the quarter, with manufacturing slightly down.
- High interest rates will be a drag on consumer spending and manufacturing into 2024.
Retail sales rose 0.7% in September from August, well above expectations for a 0.2% increase. Sales growth was also revised higher in August (to 0.8% from 0.6%) and in July (to 0.6% from 0.5%). On a quarterly basis, retail sales were up a very strong 6.9% annualized, not adjusted for inflation.
Sales excluding autos were up 0.6% in September, with sales excluding autos and gasoline also up 0.6%. Control sales-sales excluding food service, autos, gasoline, and home improvement stores, and which go into nominal consumer spending in GDP-were up 0.6% in September, and up 6.4% annualized for the third quarter.
Consumers continue to spend, and not just because of higher prices. With the consumer price index up 0.4% in September, and consumer goods prices up just 0.1%, there was a solid increase in real consumer spending over the month, and throughout the third quarter. Strong job and wage growth are supporting consumer spending gains, despite the drag from higher interest rates.
But higher interest rates will take a toll on consumer spending into next year. Autos, appliances, and home-related goods will all take a hit. Consumers have also purchased a lot of durable goods since the pandemic, which will also weigh on demand.
Industrial production rose 0.3% in September, with manufacturing output up 0.4%. Production of motor vehicles and parts was up 0.3% for the month, with the Federal Reserve noting that auto production would have been up even more without the UAW strike against the Big Three automakers. There was a large downward revision to output in August (no change from the initially reported 0.4% increase), with an upward revision to output in July (to 1.0% from 0.7%). For the entire third quarter industrial production was up a solid 2.5% annualized, although manufacturing output was down slightly (less than 0.1%). Mining output rose 0.4% in September, with utilities output down 0.3%.
The industrial side of the economy is advancing in the second half of 2023. But higher interest rates are taking a toll, with manufacturing output down slightly in the third quarter. The mining sector is benefiting from high oil prices. Utilities were a big positive for third quarter growth, especially in July with much hotter-than-usual weather.
Manufacturing is set to contract further in the fourth quarter due to the UAW strike and high interest rates that are weighing on demand for business investment, consumer durable, and housing-related goods. Overseas demand for U.S. goods is also falling with tight monetary policy across the globe and weak growth in China. The ISM manufacturing index has been below the 50 level that indicates expansion for 11 straight months.
According to the retail sales report, sales of autos and parts were up 1.0% in September. Gasoline sales were up 0.9%, in large part due to higher prices. Other results were mixed, with sales up more than 1% for nonstore retailers (primarily online) and 0.9% for restaurants and bars. General merchandise sales rose 0.4%. But sales were flat for furniture and home furnishings, and down 0.2% for building materials and 0.4% for electronics and appliances; these segments are more interest-rate sensitive.
In the industrial production release, the capacity utilization rate rose to 79.7% in September, from 79.5% in August. The manufacturing rate rose to 77.8% from 77.7%. Despite the UAW strike, the capacity utilization rate for motor vehicles and parts rose to 76.5% in September from 76.3% in August.
