U.S. consumer spending cools in October, PPI falls unexpectedly

US consumer spending showed signs of cooling in October as retail sales slightly dipped and the producer price index (PPI) experienced a notable decline, signaling a potential economic deceleration in line with Federal Reserve expectations.

Retail receipts edged down by 0.1% in October, a modest decrease that was less severe than analysts had forecasted. This followed upward revisions for sales data from the previous two months, suggesting that consumer spending is slowing but remains resilient. Notably, the retail control group, which is essential for GDP calculations, saw an increase of 0.2% in October after a revised 0.7% growth in September. This indicates a positive start to the fourth quarter following a summer marked by robust consumer activity.

Despite this, seven out of thirteen retail categories suffered declines, with furniture and car dealers seeing notable decreases. Economists remain cautiously optimistic, expecting continued but measured growth in consumer spending through 2024. The unexpected drop in the PPI by 0.5% in October, the largest since April 2020, was driven largely by falling gasoline prices, which plunged by 15.3%, contributing to over 80% of the overall decline in goods prices.

This combination of cooling consumer spending and declining producer prices adds to a series of recent economic data suggesting that the economy might be heading towards a soft landing. The Federal Reserve’s efforts to temper inflation through restrictive monetary policy appear to be bearing fruit as inflationary pressures show signs of easing.

The Labor Department’s PPI report also highlighted a year-on-year increase of 1.3% in wholesale prices, marking the smallest annual rise since early 2021 for the core gauge.

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