U.S. retail sales lose steam, consumer confidence falls as costs bite

U.S. retail sales lost momentum in September and firms grappled with an uptick in business costs, government data showed Tuesday, underscoring growing concerns about affordability in the world's biggest economy.

Beyond these delayed economic figures -- indicating that consumers turned cautious towards the end of the summer -- a separate survey saw consumer confidence hitting its lowest level since April this month.

Economists warn that the softening in sales is likely to persist as President Donald Trump's tariffs add to cost increases, while the labor market weakens.

Overall retail sales picked up by 0.2 percent on a month-on-month basis, said the Commerce Department, slightly below analyst expectations and cooling from August's 0.6 percent increase. A report by the Labor Department meanwhile showed that wholesale inflation picked up in September, rising by 0.3 percent, in line with forecasts.

This rise was driven by a 0.9-percent jump in goods prices, highlighting the steeper costs that businesses face. Much of it was attributed to the volatile food and energy segments.

But for now, some retailers continue to shield customers from the full effects of higher business prices.

As Trump's tariffs take hold, all eyes have been on how consumers -- a key driver of the world's biggest economy -- respond to price pressures.

Affordability has emerged as a key worry, with Democrats' victories in off-year elections in New Jersey, New York and Virginia this month fueled by voters angry over rising costs.

Trump has since widened tariff exemptions to cover various agriculture products as costs of living weigh on American voters.

Besides the "muted growth" in September's retail sales, Navy Federal Credit Union chief economist Heather Long flagged notable monthly declines in categories hard hit by tariffs.

These include auto parts, electronics, appliances, sporting goods and instruments.

"American consumers are in value-hunting mode," Long said. "They are spending more on the basics and being extra choosy with where they spend their discretionary dollars."

There is also a growing gap between higher earners and lower-income households.

Although wealthier households continue to spend, "middle- and lower-income families are turning more cautious heading into the holiday season," said EY-Parthenon senior economist Lydia Boussour.

She noted mounting pressures from a weaker jobs market.

The retail figures, alongside fresh evidence of soft private-sector hiring, boost the case for another Federal Reserve interest rate cut in December, Boussour added.

Data released by The Conference Board showed Tuesday too that consumers are not only "less sanguine" about their current situations but "notably more pessimistic about business conditions six months from now."

Its consumer confidence index dropped to 88.7 in November, from 95.5 in October, the lowest reading in seven months.

Looking ahead, Fed officials will be digesting the newer private sector indicators and delayed federal figures as they mull the need for another rate cut in December.

Both government reports published Tuesday had been delayed as a shutdown between October and mid-November halted data releases on inflation, jobs and others.

The stoppage hit the collection of consumer inflation and employment data for October in particular, resulting in the cancellation of full reports on both fronts. Instead, available numbers will be released with November's figures.

On Tuesday, Commerce Department figures showed that September retail sales were still up 4.3 percent from a year ago.

The producer price index report, meanwhile, indicated that "the inflation impulse from the tariffs is modest and underlying services inflation is still slowing," said Samuel Tombs of Pantheon Macroeconomics.

Underlying PPI inflation "should ease after producers have finished passing on tariff costs in a few months' time," he added.