October retail sales are expected to be strong, showing economy is back on track

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  • October retail sales are expected to rise 1.5%, fueled by early holiday buying and higher gasoline prices.
  • Economists say the report will take a critical look at whether consumers are willing to spend, even if sentiment has weakened.
  • The report suggests that the effects of the Covid delta version are fading, as some parts of the economy revive.

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Economists expect retail sales to pick up in October on the back of hike in petrol prices and early holiday buying.

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Retail sales are expected to grow 1.5% from September’s 0.7% gain, according to economists surveyed by Dow Jones. The Dow Jones found that excluding auto, sales are projected to grow 1% compared to a 0.8% increase a month ago.

The Census Bureau will release the Retail Sales Report on Tuesday, November 16 at 8:30 a.m.

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“A strong number is expected,” said Gargi Choudhury, head of iShares investment strategy Americas at BlackRock. “It’s the narrative of the past two weeks, that it’s going to be stronger retail sales than expected.”

Economists are reaffirming their forecasts, and consensus numbers are rising for the October report.

Michael Gapen, Barclays’ chief US economist, said a strong number would be an important sign that the economy is back on track. Gapen expects a gain of 1.2%.

Potential insights into economic development

The October retail sales report is one of the earliest figures for fourth quarter GDP. After a surprisingly slow 2% pace in the third quarter, Gapen expects the economy to grow 5% in the fourth quarter.

If the numbers are as expected, “what this tells us is what momentum is that restored at the end of the third quarter and is picking up in the fourth quarter, we’re in pretty good shape,” Gapen said. “This will be another data point that confirms the soft patch story rather than a slowdown.”

The retail sales report comes after a very strong October jobs report that added 531,000 payrolls.

Choudhary said that apart from addressing the latest COVID concerns, consumers can spend earlier than usual, ahead of the holiday period to ensure that they are able to find the gift they want to buy. “Cause clearly the story around supply chain disruptions is top of mind for consumers,” she said.

clues to future inflation

Consumers are worried about inflation. Indeed, the Consumer Price Index for October was up 6.2%, the highest in more than 30 years.

With those rising inflation concerns, consumer sentiment is turning sour. The University of Michigan Consumer Sentiment Index, released Friday, showed an astonishing decline from 71.7 in October to a 10-year low of 66.8 in its preliminary November report.

Investors will be watching to see whether the retail sales report is providing impetus for a further hike in inflation.

Michael Schumacher, head of macro strategy at Wells Fargo Securities, said investors in fed funds futures are pushing ahead with expectations of a rate hike on Monday. Now, the June futures contract shows strong potential for rate hikes.

After last week’s strong CPI data, traders placed their bets on interest rate hikes for the first time from September to July.

“There is some hope that the Fed may accelerate tapering,” Schumacher said. The central bank has said it will scale back its monthly bond purchases, which have helped prop up the economy through the pandemic. This quantitative easing program is expected to end by the middle of next year. Economists say that once this program is in place, the Fed will be well on its way to raising interest rates.

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