Retail sales surged 0.8% in November according to the advance Census Bureau report. This was well ahead of expectations for a 0.3% rise and came atop of large upward revisions to October sales – which are now reported to have risen by 0.5% instead of 0.2%.
Sales at motor vehicle & parts dealers (-0.2%) did little for the headline unlike gasoline station sales which rose by a robust 2.8% – partly a price story. Still, excluding autos and gas, retail sales were up just as much as the headline (0.8%) on the month, also beating expectations of a 0.3% gain.
Building materials (1.2%) had a good month as rebuilding from hurricane damage continued – the series is up 4% since August and 11.2% higher than a year ago – as did eating and drinking place sales (+0.7%). Excluding gas, autos, building materials, and food services, the so-called ‘control group’ used in calculating GDP was up 0.8% on the month – more than double the consensus call. All the categories in the control group rose, with non-store retailers (+2.5%), electronics (+2.1%), and furniture (+1.2%) leading the pack.
Key Implications
This was a terrific report with a consensus-busting headline that suggests that Americans are finally using the fruits of their labor to buy things for themselves and their loved ones. Strong payroll growth and solid wage gains have together manifested in a windfall of income gains which appears to have been put to use during the Black Friday and Cyber Monday sales ahead of Christmas. Non-store retailers, a category which includes many e-commerce sales, posted a healthy gain that was up 10.5% from last year.
Other encouraging features of the report included the broad-based strength, with just one major category (motor vehicles & parts), lower on the month, and only slightly. Sales of electronics were up higher, likely helped by the release of the new iPhone, but taken together with strength in restaurants suggest that consumers are increasingly comfortable spending on discretionary categories – not just the essentials.
Strength in building materials and furniture was also encouraging. While this partly stems from the rebuilding effort in Texas and Florida following the devastation caused by Harvey and Irma, respectively, it also is a sign of improving housing market activity related to higher existing home sales this year.
Together with the upward revisions, this report suggest that PCE growth during the fourth quarter will be nearly 0.2 percentage points stronger at 2.8% annualized – a fact that has also boosted our GDP tracking for the quarter to 2.8%. The report should also assuage some anxieties amongst the FOMC membership. The Fed rose rates yesterday and pointed to three hikes for 2018. While we think the latter is a bit optimistic, with our baseline forecast having two hikes next year, this report suggests some upside to that call, particularly if it spurs on stronger price growth with it.
