American Consumers Cut Back on Some Purchases Despite Higher Spending in September

American consumer spending rose modestly in September, shutdown-delayed government data released Tuesday show.

Retail sales rose 0.2 percent in September from August, the Commerce Department said, below economists’ expectations for a 0.3 percent gain. The increase was so small it wasn’t statistically significant. But when adjusted for price increases, the data reveal consumers reduced their actual purchases across most categories, from gasoline to groceries.

The Producer Price Index released the same day showed prices received by U.S. businesses rose modestly in September, with core prices excluding food and energy up just 0.2 percent. But even that small increase, combined with larger jumps in gasoline and food prices, meant overall retail spending didn’t keep pace with inflation, resulting in lower volumes purchased.

Gasoline stations exemplify the pattern. Sales at gas stations rose 2.0 percent in September, but gasoline prices surged 11.8 percent in the same month, according to the Labor Department’s producer price index. This likely means that consumers cut back on some optional driving and spent less on non-gasoline purchases as stations.

The surge in gasoline prices may have sapped spending power in other categories during September. But there’s potential good news for the holiday season: gasoline prices have since fallen from $3.17 per gallon in September to $3.06 currently, the lowest level since last December. That could free up consumer wallet space for holiday purchases.

Similarly, food and beverage store sales inched up 0.2 percent, falling just short of the consumer price index for groceries 0.3 percent rise. That suggests real purchases of groceries were flat to slightly down for the month.

Across retail trade more broadly, sales rose 0.1 percent nominally. The control group of retail sales, which feeds into GDP calculations, fell 0.1 percent—the first decline in five months. Core producer prices rose 0.1 percent, suggesting flat real purchases.

Purchases at car dealers declined 0.3 percent despite the producer price indexes for cars and trucks rising.  Electronics store purchases fell 0.5 percent while prices rose.  Clothing prices climbed slightly while purchases dropped 1.5 percent. Sales are garden centers and building materials stores slipped 0.4 percent.

Two categories showed genuine volume growth. Furniture and home furnishings sales jumped 2.5 percent, while producer prices for household furniture rose just 0.1 percent, indicating consumers actually increased furniture purchases.

Health and personal care stores also showed real growth, with sales up 1.1 percent and a robust 6.4 percent gain from a year earlier, while producer prices for pharmaceuticals and cosmetics held flat. The increase suggests sustained demand for medicines and personal care products even among budget-conscious consumers, with year-over-year real volume growth approaching 5.8 percent.

Sales at food services and drinking places rose 0.7 percent, with year-over-year gains of 6.7 percent, continuing a pattern of resilience in restaurants. This far outpaced the monthly price increase of 0.1 percent. This is a highly discretionary category of spending and its continued strength suggests that at least some consumers are still spending freely.

Why consumers appear to have reduced their real purchases in September remains unclear. The pullback could reflect caution about the economy and job market, or it may simply indicate that September’s spike in gasoline prices temporarily reduced spending capacity in other categories.

The September retail sales data were delayed nearly three weeks by the federal government shutdown that began Oct. 1 and ended in mid-November. The lag means the data arrived too late to influence recent Federal Reserve policy decisions and leaves officials with an incomplete picture of the economy heading into their December meeting.

For retailers, September’s weakness presents an uncertain outlook for the holiday season, though falling gasoline prices since then could help. Higher-income consumers supported by stock market gains appear willing to spend, but the broader consumer base may disappoint.

Year-over-year comparisons show retail sales up 4.3 percent from September 2024, but with producer prices up 3.3 percent over the same period, real growth is closer to 1 percent. Nonetheless, that is likely enough to support hiring in the retail sector.

The next retail sales report, covering October, faces an uncertain release date as Census Bureau statisticians work through their backlog.