WASHINGTON (Reuters) -U.S. retail sales increased less than expected in September, suggesting consumer fatigue amid higher prices because of tariffs, though the moderation did not dampen economists' expectations for solid economic growth in the third quarter.

The sales slowdown reported by the Commerce Department on Tuesday followed a long stretch of gains and marked a weak handoff to the fourth quarter. Economists said a sluggish labor market, characterized by an unemployment rate at a four-year high, was making consumers more selective about purchases. 

That development was reinforced by a survey from the Conference Board showing consumer confidence sagged to a seven-month low in November, with fewer households planning to buy motor vehicles, houses and other big-ticket items over the next six months. There was also a decline in those who said they were making vacation plans. Economists say President Donald Trump's sweeping duties on imports have raised prices for everyday commodities, including food.

"While spending has held up over 2025 despite worsening survey readings, many consumers may have reached their limit as rising prices and labor market concerns cut spending plans, at least for the near term," said Ben Ayers, senior economist at Nationwide.

Retail sales rose 0.2% after an unrevised 0.6% gain in August, the Commerce Department's Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and anot adjusted for inflation, would rise 0.4%.

On a year-over-year basis, retail sales increased 4.3%. The report, originally due in mid-October, was delayed by the 43-day shutdown of the U.S. government. 

Part of the sales increase reflected higher prices, with receipts at service stations advancing 2.0%. Sales had accelerated in prior months, in part as consumers rushed to buy battery-powered electric motor vehicles before the expiration of EV tax credits at the end of September.

Sales at auto dealerships fell 0.3%. Furniture store sales increased 0.6%, while receipts at building material and garden equipment retailers and suppliers gained 0.2%.

But sales at clothing retailers dropped 0.7% while those at electronics and appliance outlets decreased 0.5%. Online store sales eased 0.7%. Consumers also cut back spending on hobbies and sporting goods.

They, however, dined out and visited bars more. Sales at food services and drinking places, the only services component in the report, increased 0.7% after surging 1.0% in August.

Some economists argued the strength suggested discretionary spending remained in good shape.

Others noted that spending was being driven by higher-income households, with many middle-income and lower-income consumers struggling, creating what they called a K-shaped economy.

Though job growth rebounded in September, the labor market is weakening, with the unemployment rate rising to 4.4%. 

Labor market worries pushed down the Conference Board's consumer confidence index to 88.7 this month, the lowest level since April, from 95.5 in October.

CONFIDENCE DETERIORATES ACROSS THE BOARD 

Confidence deteriorated in nearly all income groups and across the political spectrum, with the sharpest drop among consumers who identified themselves as independents. 

While the correlation between consumer confidence and spending has been weak, economists said households' worsening perceptions of the labor market suggested a pullback in consumption is likely.

The Conference Board's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, fell to 9.7 from 10.3 last month. This measure correlates to the unemployment rate in the Labor Department's monthly employment report.

"A few years ago when we had negative consumer sentiment and continued spending strength, the period was referred to as a 'vibescession.' But things are different now," said Elizabeth Renter, senior economist at NerdWallet. "Household financial conditions are more fragile than they were a few years ago, so any fear about the future economy may be well-founded."

Retail sales excluding automobiles, gasoline, building materials and food services fell 0.1% in September after a downwardly revised 0.6% increase in August. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. They were previously reported to have advanced 0.7% in August.

The dip in core retail sales did not change economists' expectations that consumer spending picked up in the third quarter. The Atlanta Federal Reserve is estimating that GDP increased at a 4.0% annualized rate last quarter.

The government said on Tuesday it would release the delayed third-quarter GDP estimate on December 23. The economy grew at a 3.8% pace in the April-June quarter.

Stocks on Wall Street were trading higher. The dollar slipped against a basket of currencies. U.S. Treasury yields fell.

The Conference Board survey also showed that consumers anticipated higher inflation over the next 12 months. 

A separate report from BLS on Tuesday showed the Producer Price Index for final demand rebounded 0.3% in September, lifted by a 3.5% jump in the cost of energy goods and a 1.1% increase in food - mostly beef, fresh fruits and grains. That reading followed a 0.1% drop in August.

In the 12 months through September, the PPI increased 2.7% after advancing by the same margin in August.

There was also a strong increase in airline fares. But hotel and motel rooms as well as portfolio management fees fell. They are among the components that go into the calculation of the Personal Consumption Expenditures Price Indexes, the measures tracked by the Federal Reserve for its 2% inflation target.

Economists estimated that the PCE Price Index, excluding food and energy, increased 0.2% in September after rising by the same margin in August. That estimate would keep the annual increase in core PCE inflation at 2.9%. The odds of another interest rate cut from the U.S. central bank in December have risen, despite concerns among some Fed officials about inflation.

"Downward progress on inflation remains stalled, but overall this set of price data are not convincing enough to move the Fed doves concerned about downside labor market risks closer to the inflation hawks, leaving the committee split ahead of December's meeting," said Thomas Ryan, North America economist at Capital Economics.