US retail spending slowed more than expected in September, marking a cautious start to the holiday season as delayed government data releases finally returned after the record shutdown. The latest reading showed a modest 0.2% month-over-month increase, well below forecasts, highlighting the strain of higher prices and tighter household budgets.
The report is the first clear look at demand since official releases were paused, leaving Wall Street and the Federal Reserve operating in “data fog.” Economists say the disappointing figures don’t derail third-quarter growth, but they do reinforce a growing narrative: consumers are still spending, but their priorities are shifting.
Mixed Data Signals a Cooler Spending Trend
The weaker headline sales came alongside an unexpected decline in the retail “control group,” a component used to estimate GDP that excludes volatile categories. After a strong August, the control group dropped 0.1%, suggesting core demand may be losing steam.
Sales outside of auto purchases rose 0.3%, while the broader measure that strips out autos and gasoline barely increased. Analysts from Bloomberg and Reuters note that these narrow gains highlight a consumer base increasingly sensitive to cost-of-living pressures, especially after several months of elevated prices for food, insurance, and utilities.
Economists at Capital Economics and other market forecasters argue the pullback likely reflects temporary disruption from the shutdown — but still signals slower consumption ahead. Even with strong summer spending, growth is expected to cool sharply as households recalibrate for winter.
Retailers See Resilience — Just Not Everywhere
Recent earnings from major retailers point to the same theme: consumers are spending, but with new rules. Executives from stores like Walmart, Target, and Home Depot have repeatedly emphasized that value, essentials, and lower-priced private labels are outperforming discretionary categories.
Tariffs, rising insurance premiums, and higher borrowing costs are squeezing lower- and middle-income shoppers the most. Many are delaying purchases, trading down in grocery aisles, and prioritizing basic home goods over lifestyle products. Some analysts see this pattern as a hallmark of a “managed slowdown,” where households are adapting rather than retreating entirely. That trend will be a critical test for retailers heading into a holiday shopping season that increasingly depends on discounts, financing plans, and loyalty perks to keep carts full.
Inflation and Shutdown Fallout Complicate the Fed’s Decision
Tuesday’s retail data landed alongside wholesale inflation figures that showed producer prices rising 0.3% for September. Energy costs played an outsized role, adding another variable for Fed policymakers already wrestling with uneven inflation.
The government’s data delays have left no official read on GDP and forced investors to rely on partial indicators. With unemployment edging higher and spending softening, Fed officials are now debating whether they should prioritize price stability or step in to protect a cooling labor market. Market expectations, as tracked by CME data, now reflect an 80%+ probability of a rate cut at the December meeting — a dramatic shift from just a week ago.
Looking Ahead
Retail spending will remain a key economic driver over the next six weeks as early holiday sales roll out and consumers navigate higher costs with slimmer budgets. With partial data back on the calendar and inflation readings still unstable, the holiday season could serve as the Fed’s clearest barometer of economic strength. If bargain hunting keeps spending alive while inflation cools, policymakers may feel comfortable easing rates. If consumers pull back further, the slowdown may arrive faster than Wall Street expects — and with far fewer discounts than retailers hoped.
