Retail sales surged 1.6% in September according to the advance Census Bureau report. While this was slightly shy of expectations for a 1.7% rise, upward revisions to August sales – which are now reported to have declined by 0.1% instead of a 0.2% decline – more than made up for the miss.
Sales at motor vehicle & parts dealers (+3.6%) helped lift the headline – a fact telegraphed in the strong unit sales number earlier this month – with gasoline station sales rising by a whopping 5.8% as fuel was replenished after shortages and its price rose. Excluding autos and gas, retail sales were up 0.5% on the month, beating expectations and following an upwardly revised gain of 0.1% (previously reported as 0.1% decline).
Building materials (2.1%) had a great month as rebuilding got underway, as did eating and drinking places (+0.8%). Excluding gas, autos, building materials, and food services, the so-called ‘control group’ used in calculating GDP was up 0.4% on the month – right on consensus. About half of the categories in the control group rose, with groceries (+0.8%), clothing (+0.4%), merchandise (+0.3%) and non-store retailers (+0.5%) leading the gains. On the other hand, spending on electronics (-1.1%), miscellaneous (-0.6%), health and personal care (-0.4%), furniture (-0.4%) and sporting goods (-0.2%) pulled back on the month.
Key Implications
This was a solid report all things considered. The headline suggests that rebuilding has already started, with activity likely to pull back somewhat, but still remain elevated for several months. Despite the headline print falling slightly shy of expectations, revisions to previous month’s sales more than made up for miss. Together with the relatively muted price changes in core goods released in this morning’s CPI report, the retail report suggests a slightly stronger Q3 consumption profile of just above 2% and a great hand-off into the fourth quarter when consumption should accelerate closer to 3%.
While the strength in building materials, gasoline, autos, and furniture is likely to fade towards the end of the year and dissipate altogether next year, we expect the consumer will continue to be the main engine of growth for the American economy. This will be supported by the rising income, as the ever improving labor market continues to generate jobs while tighter conditions drive up wages.
The strength of this report is likely going to be seen through by the Fed, with FOMC members expecting distortions from Hurricane activity to be transitory and not materially affecting the economy’s path beyond the near-term. Having said that, while the relatively healthy retail sales report may be viewed constructively as far as another rate hike in December, this morning’s weak CPI data will be viewed as an argument to be patient.
