The news: US shoppers’ retail spending was flat month-over-month (MoM) in September as consumers dealt with inflation and rising interest rates, per the US Commerce Department.
Signs of challenges ahead: Although US consumers have generally shrugged off higher prices and rising interest rates in recent months, there are signs that their ability to do so may be starting to wane.
But it’s not all bad news: Yet, despite those negative signals, retail sales in September still rose 8.2% YoY thanks in part to a labor market that remains extremely strong. The labor market is a key determinant of consumer spending trends, which is why our forecast is fairly optimistic about top-line holiday spending numbers.
Looking further ahead: The Fed has made clear that it will continue to aggressively hike interest rates to combat rising inflation. That will make borrowing costs higher, which may lead some consumers to be reluctant to use their credit cards.
The big takeaway: The strong labor market has helped retail sales keep pace with inflation. But if interest rates continue to rise, retailers will have no choice but to cut costs and focus on profitability.
This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.
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