US Retail Sales Rise as Industrial Production Dips

After rising modestly in August, retail sales came in stronger in September, beating the 0.3% consensus forecast. Retail sales excluding motor vehicles and gasoline really blew past expectations.

The September report wasn’t all rosy, however. The auto sector was flat despite encouraging new car sales data released earlier this month, and gas station receipts were down sharply for a second straight month on lower pump prices. Sales of furniture and electronics were also slow, with price effects behind some of the softness in electronics. Other retail categories fared pretty well in September despite Hurricanes Francine and Helene. Food services posted a 1% gain, their best monthly print since November 2023. Clothing was up a seemingly robust 1.5%, but with consumer prices rising 1.1% in this category in September, sales were modest in real terms. Factoring in inflation, September retail sales growth looks pretty solid overall despite some weaknesses in durable goods. This suggests another strong print for annualized quarterly real consumer spending for Q3 following a 2.8% advance in Q2. That in turn bodes well for real GDP, which could expand close to 3% in the third quarter.

But while retail sales surprised slightly to the upside, industrial production was more disappointing. This was largely due to one-off events, however. The aerospace sector was down 8.3% month‑over‑month due to the Boeing strike, while Hurricanes Francine and Helene hobbled manufacturing and mining. The strike and the hurricanes each shaved 0.3% off industrial production in September, accounting for the entire monthly decline. While the effects of these events should be short-lived, the strike at Boeing is ongoing, and Hurricane Milton, which made landfall in October, will likely show up in the early Q4 numbers.

The September retail sales print suggests the US economy continues to grow at a healthy pace despite a drop in industrial production. Another 50‑basis‑point cut was already off the table for the Fed’s upcoming meetings given the strong job and core inflation data for September. But we still expect 25‑basis‑point cuts in November and December, though a pause may not be too far off.