Advance retail sales came in as anticipated in September, rising 0.6%, following a decline of 0.2% in August. Sales are now 2.7% higher than a year ago. Excluding autos, sales were also stronger, rising by 0.5%, after a 0.2% decline in August. Sales for this category are now up 2.7% from one year ago. Motor vehicle and parts sales increased by 1.1%, after a drop of 0.3% revised up from -0.9%; they are now 2.5% higher than a year ago.
The most meaningful measure of retail sales activity excludes gasoline and auto sales (to negate the volatile influences of gasoline prices and auto financing incentives). Sales at gasoline stations increased by 2.4%, following a 1.4% fall in August, and are 3.4% lower than a year ago. The strength in core sales was mainly focused at miscellaneous stores (1.8%), stores for building materials and gardening equipment (1.4%), sporting goods, hobby, book, and music stores (1.4%), and furniture and home furnishings (1.0%). Any weakness in the month came from decreases at electronics and appliance stores, department stores, and health and personal care stores. Excluding gasoline and autos, retail sales were 0.3% higher on the month, following a flat reading in August, and were 3.4% higher than a year ago. Lastly, non-auto, non-gasoline station sales, less building and gardening equipment, were 0.2% higher in the month and 3.2% higher annually.
This was an important indicator for the economy, in the sense that August was a particularly weak month for economic data across the board and has unsurprisingly raised fears that we may have started another major economic slowdown. The fact that September’s data has been tangibly better should go some way toward alleviating these fears for investors who are already jittery about the current state of the equity and bond markets following five consecutive quarters of negative earnings growth. Hence, the fact that consumer confidence hit a nine-year high in September, along with better jobs data, a move back into expansion territory on the ISM index and now signs that consumer spending is firming up a little all suggest that August was more of a weak pocket (within an admittedly soft recovery) and probably not yet the start of the next major downturn. The retail sales data itself has also been quite volatile due to changes in gasoline prices and autos sales. Consumer seem to be saving more in reaction to the very low interest rates and pall of uncertainty. However, we continue to see support coming from an ever-tighter labour market, moderate wage inflation, rising consumer confidence, stronger balance sheets, and continued lower energy prices. Consumers are also increasing their spending at home furnishings and building-related stores in conjunction with the improvements in the housing sector. As far as the Fed is concerned, it will be encouraged by this report, which keeps it on track for another rate increase in December. There are also two more retail sales reports to go before the December 14 FOMC meeting.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.