Bloomberg News/Landov A shopper carries a Bloomingdale's Inc. retail bag in the SoHo neighborhood of New York. Sales at U.S. retailers leaped 0.8% in October. Department stores were a big winner.
The numbers: Sales at U.S. retailers surged in October after the first back-to-back declines since 2015, though most of the money was spent on gas and new cars and trucks.
Retail sales leaped 0.8% last month, the government said Thursday. Economists polled by MarketWatch had predicted a 0.6% increase.
The increase follows small declines in September and August. The government initially said sales rose slightly in both of those months, but it revised the figures lower in its latest update.
That could also result in the government trimming the initially estimated 3.5% growth in gross domestic product in the third quarter.
What happened: Sales jumped 3.5% at gas stations, mostly reflecting higher prices at the pump. More spending on fuel is not a good thing for households, but a recent plunge in oil prices signals that price relief is on the way.
Sales of new cars and trucks increased 1.1%, making auto dealers a big winner.
When Americans have to spend more money on gas or they buy big-ticket items such as cars, they have less cash to spend on other items. Overall retail sales rose a much more modest 0.3% if gas and autos are stripped out.
Department stores reported a 1.3% increase in sales and home centers saw a 1% gain. Sales fell for restaurants and stores that sell home furnishings, reflecting a recent slowdown in the housing market as U.S. interest rates rise.
Sales may have been affected by hurricanes Florence,and Michael, but the government said it could not determine how much.
Big picture: The holiday shopping season is gearing up to be a strong one. The best labor market in decades has spawned record job openings and is leading to rising incomes, giving households more ability to spend.
There are some clouds on the horizon, though. The stock market has fallen sharply from record highs and rising interest rates have hurt interest-rate sensitive parts of the economy such as housing.
Households have also dipped deeper into their savings to pay for their purchases, a trend that can’t go on indefinitely.
The dropoff in sales toward the end of summer, especially on discretionary items like eating out, shows that Americans are unlikely to spend as much in the final three months of 2018 as they did in the spring and summer.
The government said sales fell 0.1% in September and August, instead of rising 0.1% as originally reported.
Read: Americans still upbeat despite stock-market turmoil, consumer sentiment shows
Market reaction: The Dow Jones Industrial Average DJIA, -0.81% and the S&P 500 SPX, -0.76% were set to open lower in Thursday trades. Stocks have fallen sharply since hitting a record high in early October.
The 10-year Treasury yield TMUBMUSD10Y, -1.14% slipped to 3.10%, pulling back from as high as 3.24% just a week ago.
