Signs from the Commerce Department report on Friday that consumer spending was slowing faster than economists had expected, and news that production at factories tumbled again in October, revived concerns about a downshift in the economy, which had receded after a recent raft of fairly upbeat data.
Economists slashed their economic growth estimates for the fourth quarter following Friday's reports.
"The consumer is still spending, but not robustly enough to support other sectors, especially business investment," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
Federal Reserve Chairman Jerome Powell on Thursday told lawmakers that "the U.S. economy is the star economy these days," compared to other advanced economies and "there's no reason that can't continue." The U.S. central bank signalled last month that it will probably not cut interest rates again in the near term.
Retail sales gained 0.3% last month. But the increase in sales, which reversed September's unrevised 0.3% drop, reflected higher motor vehicle and gasoline prices. Economists polled by Reuters had forecast retail sales climbing 0.2% in October after falling in September for first time in seven months.
Auto manufacturers reported a drop in unit sales in October. Compared to October last year, retail sales advanced 3.1%.
Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3% last month. Data for September was revised lower to show the so-called core retail sales slipping 0.1% instead of being unchanged as previously reported. Core retail sales correspond most closely with the consumer spending component of gross domestic product.
"We have long been anticipating a slowdown in consumer spending but it appears to have happened more significantly than we had expected," said Daniel Silver, an economist at JPMorgan in New York.
Based on the latest data, economists estimated that consumer spending, which accounts for more than two-thirds of the economy, could grow at around a 1.5% annualised rate in the fourth quarter. That would be a step-down from the 2.9% pace notched in the July-September period.
U.S. financial markets were little moved by the data as investors watched news on trade negotiations between the United States and China. The dollar fell against a basket of currencies. U.S. Treasury prices slipped, while stocks on Wall Street were trading higher.
GROWTH ESTIMATES SLASHED
Consumer spending is being supported by the lowest unemployment rate in nearly 50 years. Strong consumption has helped to blunt the hit on the economy from the White House's 16-month trade war with China, which has led to a decline in capital expenditure and a recession in manufacturing.
The manufacturing downturn deepened in October, with the Fed reporting on Friday that output at factories tumbled 0.6%, the most since May 2018, after dropping 0.5% in September. Output, was weighed down by an 11.1% plunge in motor vehicle production because of a 40-day strike at General Motors.
Excluding auto production, manufacturing output slipped 0.1% last month. Even with trade tensions between Washington and Beijing easing, there is no sign that business confidence and manufacturing will rebound anytime soon.
In a third report on Friday, the New York Fed said its business conditions index for factories in New York state fell to a reading of 2.9 in November from 4.0 in October. Manufacturers remained pessimistic about business conditions over the next six months.
"With the global backdrop still weak and trade policy still up in the air, we expect the underlying trend in manufacturing activity to remain subdued over the next few months," said Sarah House, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
Following the reports, the Atlanta Fed slashed its GDP growth estimate for the fourth quarter to a 0.3% rate from a 1.0% pace. The economy grew at a 1.9% rate in the third quarter.
The Fed last month cut rates for the third time this year and indicated a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.
Receipts at auto dealerships gained 0.5% in October after falling 1.3% in September. Sales at service stations surged 1.1%. Online and mail-order retail sales increased 0.9%.
Walmart Inc on Thursday reported better-than-expected earnings for the third quarter, driven by food sales. The world's largest retailer raised its annual outlook.
But the retrenchment in purchases of big-ticket household items and discretionary spending casts doubts on the holiday shopping season, which typically kicks off around Thanksgiving.
Sales at electronics and appliance stores fell 0.4% last month and receipts at clothing stores declined 1.0%. Spending at furniture stores decreased 0.9%, the most since December 2018.
Receipts at building material stores dropped 0.5%. Americans also cut back on spending at restaurants and bars, with sales falling 0.3%, the most in nearly a year. Spending at hobby, musical instrument and book stores dropped 0.8%.
"Consumers are easing off their spendthrift ways from the second quarter and are adopting more prudent attitudes," said Robert Frick, corporate economist at Navy Federal Credit Union in Vienna, Virginia. "Should these trends continue we will be facing a not-so-merry holiday shopping season."
By Lucia Mutikani
