US Retail Sales At All-Time Highs, But Consumer Sentiment Hits 10-Year Low

Investors reacted positively to a strong U.S. retail sales report on Tuesday, but there has been a historic divergence between consumer sentiment and consumer behavior.

The Numbers: On Tuesday, the Commerce Department reported U.S. retail sales grew 1.7% in October, ahead of analyst estimates of 1.5% growth. The stronger-than-expected spending numbers come the same month the consumer price index jumped 6.2%, its highest growth since the 1990s.

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Meanwhile, the University of Michigan Consumer Sentiment Index fell to 66.8 for November, its lowest level in a decade. Consumers are concerned about the negative impact inflation could have on their future spending and savings.

Charlie Bilello, founder and CEO of Compound Capital Advisors, tweeted the chart below highlighting the divergence between retail sales and consumer sentiment, adding that he believes the retail sales numbers are a more important economic indicator.

“Watch what they do, not what they say,” Bilello tweeted.

Why It’s Important: Core inflation, which excludes volatile food and energy prices, was up 6.2% in October, its sharpest increase in 31 years.

Fuel oil prices were up 12.3% month-over-month and 59.1% compared to a year ago. Used car prices were once again a major inflation driver in October as well. Used car and truck prices increased by 2.5% in October and are up 26.4% over the last 12 months.

At the same time, one in four Americans say they have reduced their living standards because of price increases, while half of American families expect a net reduction in real income over the next year.

The Labor Department reported that U.S. wages grew 4.9% year-over-year in October. Unfortunately, it also said real wages after adjusting for inflation were down 0.5% from September to October.

Benzinga’s Take: The divergence between retail sales and consumer sentiment may also lie in the growing divide between the wealthiest Americans and the rest of the country. The SPDR S&P 500 ETF Trust SPY is now up more than 110% from its pandemic lows, generating billions of dollars of wealth for American millionaires and billionaires. The average American is clearly deeply concerned about the economic outlook, but wealthy Americans with the most spending power may be spending more than ever.