Retail sales rose by 0.7% month-on-month (m/m) in September, down slightly from the upwardly revised 0.8% (previously 0.6%) reading in August. This was notably above the median consensus forecast calling for a more muted gain of 0.3%.
Trade in the auto sector strengthened on the month rising by 1.0% m/m, relative to a 0.4% m/m gain in August. This reflected growth in sales at both automotive parts and accessory stores, which rose 0.3% (erasing a -0.1% decline last month) and at motor vehicle dealers (up 1.1%).
Sales at gasoline stations was much more muted this month. Gas station sales were up 0.9% m/m relative to the 6.7% jump recorded in August. The deceleration largely reflects the pullback in gas prices. The building materials and equipment category declined by -0.2% m/m.
Sales in the retail sales “control group”, which excludes the above volatile components (autos, building materials and gas) and is used to estimate personal consumption expenditures (PCE) came in at 0.6% m/m – this was significantly above consensus expectations which called for a flat reading. August’s figure was also revised upwards to show an increase of 0.2% instead of the previously reported 0.1%.
- Among the control group, the largest contribution came from sales at miscellaneous stores retailers (+3.0% m/m), non-store retailers (+1.1% m/m) and health and personal care (+0.8% m/m).
- The main categories posting declines were clothing and accessories stores (-0.8% m/m) and furniture and electronics stores (-0.4% m/m).
Food services & drinking places – the only services category in the retail sales report – was up 0.9% m/m.
Key Implications
Despite mounting obstacles facing consumers, retail sales still managed to carve out a gain, finishing the third quarter in positive territory. Monthly sales rose at a relatively fast pace adding to similarly strong gains earlier in the quarter. Sales in the key control group also continued to defy the odds, rebounding from the relatively slower pace of growth in August. All said, with today’s numbers, sales for the third quarter were strong at 6.9% annualized – significantly above the 0.4% annualized gain recorded in Q2.
Even so, the strong posting in Q3 retail spending is probably the last hurrah for consumers as growing pressures are likely to constrain spending in Q4. Falling but still above target inflation, tightening credit, resumption of student loan payments and even heightened economic uncertainty due to geopolitical tensions are all likely to weigh on consumers in the months ahead. As such, spending is expected to decelerate for the remainder of the year.
