US retail sales rose more slowly in September, signaling consumer demand is beginning to weaken as the country emerges from a government shutdown that has hampered the release of key economic data. Core retail sales rose just 0.2%, well below market expectations and half the growth in August.
Retail sales excluding automobiles, gasoline, construction materials and food services fell 0.1%, indicating an underlying slowdown in consumer spending. Other core sales also showed modest growth and reflected changing buying behavior ahead of the holiday season.
Large retailers reported that consumers were more cautious about choosing essential items. Walmart, Target and Home Depot highlighted continued pressure on low- and middle-income households from inflation, tariffs and higher borrowing rates.
The retail sales report also came as the Federal Reserve considers its next monetary policy action ahead of its December meeting. Fed officials have mixed views, especially after September labor market data showed mixed job growth and the highest unemployment rate since 2021.
Despite the mixed economic picture, markets appear increasingly bullish on the possibility of a December rate cut, with the probability now rising to 85%. Investors see weak retail data as an additional factor that could prompt the Fed to ease policy sooner.
