US: Retail Sales Came in Stronger Than Expected in September  

Retail sales rose 0.4% month-on-month (m/m) in September, higher than August’s 0.1% gain and ahead of consensus forecast calling for an increase of 0.3% m/m.

Trade in the auto sector was flat for the month, as the marginal increase at automotive parts and accessory stores (0.5%) was wholly offset by the slight decline at motor vehicle dealers (-0.01%).

Sales at gasoline stations dipped -1.6% m/m in September, though this was largely a price story, as prices at the pump fell 4.0% m/m last month. The building materials and equipment category rose by 0.2% m/m.

Sales in the “control group”, which excludes the volatile components above (i.e., gasoline, autos and building supplies) and is used in the estimate of personal consumption expenditures (PCE), rose 0.7% m/m, a sizeable acceleration from the 0.3% monthly gain in August.

• Gains were concentrated across miscellaneous store retailers (4.0% m/m), clothing & accessories stores (1.5% m/m) and health & personal care stores (1.1% m/m).
• The largest decline was at furniture and electronics stores (-2.2% m/m).

Food services & drinking places – the only services category in the retail sales report – rose 1.0% m/m. August’s data was also revised up to 0.5% (reported as flat previously).

Key Implications

The U.S. consumer continues to display notable resilience, despite the headwinds that have blown their way. Monthly sales rose at a relatively fast pace adding to previous gains earlier in the quarter. Sales in the key control group were also notable, remaining in positive territory for the fifth consecutive month. All said, with today’s numbers, growth in sales for the third quarter was strong at 5.3% annualized – notably above the 1.8% annualized gain recorded in Q2 and significantly higher than the decline in Q1 (-0.8%).

After a brief stumble at the beginning of the year, consumers seem to have found their footing again. Recent revisions to income and spending data suggests that they may have even more room to run than we previously believed. While we no longer expect growth in consumer spending to dip below 2% annualized, a deceleration from our current tracking of above-3.0% in Q3 is still in the cards over the coming quarters.