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October retail sales hit 8-month high

Retail sales in the United States posted the biggest increase in eight months in October, indicating demand for goods is broadly holding up despite decades-high inflation and a worsening economic outlook.

The Commerce Department said Wednesday that retail sales rose 1.3% in October from September, up from a flat reading in September from August. Prices rose 0.4% in October from September, according to the department.

The government’s solid report contrasted with gloomy figures Wednesday from retail chain Target Corp., which announced unexpectedly weak profits as its increasingly price-sensitive customers pulled back spending.

Overall, nine of 13 retail categories rose last month, according to the Commerce report, including firm results at auto dealers, grocery stores and restaurants. The value of sales at gas stations climbed 4.1%, mostly reflecting higher pump prices.

The data illustrated that consumers continue to prove largely resilient and suggested the economy got off to a good start in the fourth quarter. That may complicate the argument posed by several Federal Reserve officials pushing for a slower pace of interest-rate increases in coming months, but policymakers acknowledge that inflation remains far too high.

Consumer and producer price growth eased by more than forecast last month, spurring a rally in stock and bond markets in hopes that the Fed will downshift to smaller increases as soon as December.

After Wednesday’s retail report, two-year Treasury yields rose, and U.S. stock futures remained lower.

There are ongoing signs that cracks are forming in consumers’ ability to keep up with the highest inflation in four decades. More households are relying on credit cards to pay bills, with nationwide credit card balances jumping 15% in the July-September quarter from a year ago, the largest year-over-year increase in two decades, according to a report Tuesday from the Federal Reserve Bank of New York.

“Consumers are likely turning to credit to support spending as wage growth lags inflation and high prices are eating away from the stock of savings,” said Jeffrey Roach, chief economist for LPL Financial.

Retailers are seeing the impact of inflation in earnings. Home Depot Inc.’s profit exceeded expectations last quarter, but the but was driven by higher prices rather than more transactions. Walmart Inc., meanwhile, raised its full-year guidance as U.S. shoppers flocked to its stores to find discounts.

At the same time, Target warned that shoppers are pulling back, “with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty,” CEO Brian Cornell said in a statement Wednesday.

Many retailers, stuck with a glut of inventory, have deployed deep discounts to try to move stock off their shelves for the crucial holiday season. Sales at clothing stores were little changed while those at department stores fell 2.1%, according to the Commerce Department.

Other discretionary categories like electronics and sporting goods also declined, the department reported, suggesting price cuts and weaker demand are weighing on the value of sales.

Besides not being adjusted for price increases, the retail sales report only captures a sliver of services spending, where Americans have been shifting more of their dollars. A fuller picture of October household demand, which includes services spending and inflation-adjusted figures, will be released in two weeks.

Information for this article was contributed by Augusta Saraiva, Joshua Robinson and Reade Pickert of Bloomberg News (WPNS), and Christopher Rugaber of The Associated Press.

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