Retail Sector Stalls In October As U.S. Auto Sales Plummet Over EV Tax Credit Expiration

U.S. retail sales ground to a halt in October, marking a dramatic reversal from consumer momentum. The Commerce Department’s latest report reveals that overall retail spending remained essentially flat last month, despite economist expectations for a 0.2 percent rise. The primary culprit behind this disappointing performance stems from a severe contraction in the automotive sector, where u.s. auto sales collapsed following the expiration of federal electric vehicle tax incentives.

Motor vehicle and parts dealers bore the brunt of October’s weakness, experiencing a sharp 1.6 percent decline in sales. This sharp pullback more than offset gains registered elsewhere in the retail landscape. The deterioration stands in contrast to September’s modest 0.1 percent decrease, suggesting accelerating weakness in the automotive channel.

Underlying Strength Masks Auto Sector Pain

Stripping away vehicle-related transactions reveals a fundamentally stronger consumer spending picture. Excluding auto and parts sales, retail purchases advanced by 0.4 percent in October—surpassing the 0.3 percent expectation and building on September’s 0.1 percent gain. This divergence underscores how u.s. auto sales weakness obscured resilience in other retail categories.

Department stores led the advance with a commanding 4.9 percent surge, while furniture retailers, sporting goods establishments, and specialty book and music shops all posted notable improvements. Non-store and miscellaneous retailers similarly contributed to the broader strength.

Core Retail Shows Impressive Momentum

Core retail sales—which exclude automobiles, gasoline, building materials, and food services—delivered an even more robust 0.8 percent increase, doubling the prior month’s 0.1 percent slip and exceeding the 0.3 percent forecast. This metric carries particular significance for policymakers tracking consumption trends independent of commodity volatility and the auto sector’s policy-driven swings.

What Economists Are Saying

Michael Pearce, Chief U.S. Economist at Oxford Economics, emphasized the temporary nature of October’s headline disappointment: “Though headline retail sales were unchanged in October, that was entirely due to a drop in vehicle sales following the expiry of the EV tax credit. Excluding autos, sales posted another strong gain and leave real consumption on track for growth of close to 2% annualized in Q4.”

His assessment suggests the underlying consumption engine remains adequately robust, with fourth-quarter real growth tracking toward the 2 percent annualized range—a meaningful indicator for broader economic health heading into year-end.