Retail sales rose by 1.3% m/m in October, above the consensus forecast of a 1.0% gain. September data remained flat.
Sales at autos & parts dealers rose by 1.3% m/m erasing September’s losses. Excluding autos, sales were up 1.3% m/m.
Gasoline station receipts rebounded from a three-month decline, rising 4.1% m/m. Sales at building materials and garden equipment stores were up 1.4% m/m.
Retail sales in the “control group,” which excludes the most volatile categories (autos, gas stations and building materials) and are used in estimating personal consumption expenditures (PCE), rose a healthy 0.7% m/m – double what was expected.
- Within the group, the biggest contributors to growth were sales at non-store retailers (+1.2% m/m) and restaurants (+1.4%m/m) – the only barometers for the services sector in today’s reading. Sales were solid at food & beverage stores (+1.4% m/m) and health stores (+0.5% m/m).
- Categories that reported losses in October were sporting goods & music stores (-0.3% m/m) and department stores (-0.2% m/m). Sales at apparel stores were flat on the month, after an upwardly revised gain of 1.0% in September.
Key Implications
A strong start to the quarter was broad-based with a little extra push from sales at gas stations, which reflect price gains. Meanwhile, growth in auto sales was primed by stronger production that helped increase dealers’ inventories. In addition, auto sales got a boost from replacements after hurricane Ian, which is estimated to have destroyed between 30,000 and 70,000 cars. We should see demand moderation in future months, but with today’s growth real durables goods consumption is forecast to finish the year with decent gains helping lift real PCE growth to 1.7% (annualized) in Q4 – an above trend clip.
Today’s report also kicks off the holiday shopping season, pushing sales up in October. According to the National Retail Federation’s annual forecast, holiday spending is expected to be healthy but grow at roughly half the pace of last year – namely, 6-8%. With year-on-year inflation at 7.7%, real holiday sales are poised to move sideways or, at best, gain moderately. So retailers in categories with overbuilt inventories and stagnant sales (department stores, furniture & electronics, building materials) will need to discount their merchandise to appeal to consumers looking to maintain purchasing power.
