Back-to-School bonanza

US consumption remains resilient because strong employment and accumulated household wealth outweigh weaker confidence, but higher energy prices and renewed Fed tightening threaten the outlook.

• Nominal retail sales rose 0.8% month-over-month in September 2026, versus 1.3% in August and a 0.3% consensus forecast; control sales increased only 0.1%, below the 0.3% consensus.
• Back-to-school sales rose 5.6% year-over-year from June through September, the strongest season since the 9.2% increase in 2022; July was distorted by activity pulled forward into June by the football tournament, America250 and Amazon Prime week.
• WTI crude rose nearly 50%, from $75 in early August to $110 per barrel, while gasoline increased 12% to $4.50 per gallon and diesel rose 23% to $6.50; core CPI consequently accelerated to 2.6% year-over-year in September from 2.4% in August.
• The Federal Reserve raised rates by 25 basis points on September 16, 2026, and the author expects two further hikes; confidence indicators weakened, including the Conference Board index falling to 81.9 and the University of Michigan index to 48.0.
• Employment remained supportive: payrolls averaged 87,000 monthly additions over the prior seven months, unemployment was 4.2%, and average hourly earnings growth slowed to 3.0% year-over-year, the Fed's target.

Takeaway: The author sees good prospects for Christmas spending because labor income and wealth effects continue to support consumers, but warns that energy-driven inflation, falling confidence and further rate hikes could weaken the expansion.