U.S. economy warning lights…inflationary pressures persist while consumption slows

U.S. September retail sales fell short of expectations

November consumer confidence index at 88.7

Sharp decline from 95.5 in October

Statistics that had been delayed by a U.S. federal government shutdown were released, showing that U.S. consumption clearly slowed toward the end of the third quarter. The November consumer confidence index also fell sharply, turning on warning lights for the overall economy ahead of the year-end shopping season.

The U.S. Commerce Department said on the 25th (local time) that September retail sales rose 0.2% month-on-month. Falling short of market expectations (0.3%), purchases of major items such as automobiles, electronics, and clothing — sectors bearing concentrated tariff burdens — were restrained. On the other hand, spending in some services and durable goods areas such as dining out, personal items, and furniture increased.

This data reflects consumption trends just before the government shutdown that began on October 1. Statistical agencies are updating data after the shutdown ended in mid-November, and recent results from major retailers also show patterns of consumers cutting spending while seeking "value for money."

On the same day, private research firm The Conference Board announced that the November Consumer Confidence Index (CCI) recorded 88.7, a sharp drop from October (95.5). This was also below the market expectation of 93.2. The proportion of respondents who answered that the economy is "good" fell to 20.1% (October 20.7%), and the share who saw jobs as "plentiful" dropped to 27.6% (October 28.6%).

Another report delayed by the shutdown showed that the September Producer Price Index (PPI) rose 0.3% month-on-month. Rebounding from August (-0.1%), this suggests wholesale price increases are strengthening again. These indicators show that inflationary pressures remain elevated even as consumer spending began to slow from the end of the third quarter.

Lydia Boussour, chief economist at EY-Parthenon, analyzed that "economic prospects are weakening ahead of the year-end shopping season," adding that "with inflation rising again and the labor market cooling, household real purchasing power is weakening."

Labor market weakness is becoming even more evident. U.S. payroll processor ADP said that in the four weeks through November 8, the private sector cut an average of 13,500 jobs per week. ADP explained that "companies may be delaying or reducing hiring ahead of the holiday hiring season."

Persistent weak employment and ongoing inflation are likely to complicate policy decisions at the Federal Reserve meeting to be held in two weeks. Inside the Fed, opinions are split between cutting rates to defend employment and keeping rates steady to stabilize prices.

Consumption, which accounts for more than two-thirds of the U.S. economy, is the main engine of the economy, but recently the spending capacity between high-income and low-income groups has become more polarized. High-income households, buoyed by stock market gains, are continuing dining and leisure spending, with September dining-out spending rising 0.7%. In contrast, middle- and low-income households are clearly shifting to off-price·low-price retail channels amid inflation and tariff pressures.

Indeed, Walmart said on the 20th (local time) that third-quarter sales, which ended in late October, rose 5.8% year-on-year to $179.5 billion, and net income rose 29% to $6.1 billion. Same-store sales in the U.S. increased 4.5%.

In that earnings announcement, Walmart Chief Financial Officer John David Rainey explained that "by income bracket, spending has slowed among low-income households, but the inflow of higher-income customers is more pronounced."

New York = Park Shin-young, correspondent nyusos@hankyung.com