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Recession Watch: Retail Sales Plummet as Consumer Economy Shows Cracks

Recession Watch: Retail Sales Plummet as Consumer Economy Shows Cracks

Retail sales fell in September for the first time in seven months, stoking new fears that a recession is building after the manufacturing sector also contracted for the first time several years.

Retail sales dropped 0.3% for the month of September, according to the Commerce Department, as U.S. households cut spending on cars, online purchases and building materials. It was the first time retail sales had slowed since February, and the timing is odd with the holidays coming up soon.

The figures for August showed retail sales gained 0.6% instead of the 0.4% that had been previously estimated. Economists polled by Reuters previously forecasted gains of 0.3% for the month of September. Retail sales in September of last year were much, much higher at 4.1%, so there’s been a massive slowdown in just one year.

“While this is by no means conclusive evidence that the consumer is wavering (after all, the upward revisions reduce the impact of September’s declines), it nonetheless reinforces our ongoing concern that a spending retrenchment will ultimately trigger a more durable slowdown,” BMO Capital head of rates research Ian Lyngen wrote in a note to clients.

For the month, auto sales dipped 0.9%, the biggest drop in eight months after hitting 1.9% in August. Service station receipts also fell 0.7%, mostly due to cheaper gas, according to CNBC.

Not counting cars, gas, building materials and food services, retail sales weren’t that much stronger after rising 0.3% in August. The figures from the last two months also show a drastic slowdown in consumer spending during the third quarter while consumption, which is about two-thirds of the U.S. gross domestic product, increased at a 4.6% annualized clip during the second quarter, which is the most in a year and a half.

Consumer spending has been a big component of the economy under President Donald Trump, as it is one of the three big factors Moody’s Analytics pointed to that signal he will win in a landslide in 2020 (which we covered here on Money and Markets on Tuesday).

“The drop back in retail sales in September was partly driven by a price-related fall back in gasoline prices, but the fact that underlying control group retail sales were unchanged provides another clear sign that consumption growth is slowing,” Capital Economics senior economist Michael Pearce wrote in a note to clients.

“We think real consumption rose by 2.5% annualized in the third quarter, down from 4.2% rise in the second, with overall GDP growth slowing to just 1.5% annualized, from 2.0%.”