Advance retail sales came in at a greater-than-anticipated 0.8% in October, following an upwardly revised September reading of 1.0%. Sales are now 4.3% higher than a year ago. Excluding autos, sales were also stronger, rising by 0.8%, after a 0.7% increase in September. Sales for this category are now up 4.0% from one year ago. Motor vehicle and parts sales increased by 1.1%, after an increase of 1.9%; they are now 5.4% 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 2.2%, following a 3.0% rise in September, and are 0.8% higher than a year ago. The strength in core sales was mainly focused at miscellaneous stores (2.4%), nonstore retailers (1.5%), sporting goods, hobby, book, and music stores (1.3%), and stores for building materials and gardening equipment (1.1%). Any weakness in the month came from decreases at furniture and home furnishing stores, food services and drinking places, and department stores. Excluding gasoline and autos, retail sales were 0.6% higher on the month, following a 0.5% increase in September, and were 4.4% higher than a year ago. Lastly, non-auto, non-gasoline station sales, less building and gardening equipment, were 0.6% higher in the month and 4.2% higher annually.
Today’s retail sales report was particularly comforting following heightened concerns that consumption may have been starting to fade following what turned out to be a fairly weak start to the third quarter. The sustained increase in spending in October, following upward revisions to September’s activity, was solid confirmation that the consumer continues to muddle along at a moderate, albeit fairly choppy pace. Choppiness in the retail sales data over the last two years has been due in large part to the sharp fluctuations in gasoline prices and auto sales, but also to the up-and-down nature of consumer spending in a lower debt world (less debt equals demand pulled forward and less consumption smoothing taking place). Consumer confidence was slightly lower in the month of October, however, it also comes off of what was a 9-year high in the previous month. Furthermore, we continue to see support coming from an ever-tighter labour market, moderate wage inflation, stronger balance sheets, and continued lower energy prices. As far as the Fed is concerned, it will be encouraged by this report, which also keeps it on track for another rate increase in December.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.