Retail sales were flat in September month-on-month (m/m), below market expectations for a modest gain of 0.2% m/m. The level of sales was revised 0.4% higher in August (vs. 0.3% reported earlier).
Sales at autos & parts dealers declined by 0.4% m/m after growing 2.8% m/m in August.
Gasoline station receipts were the major drag in today’s report, down 1.4% m/m. Sales at building materials and garden equipment were down 0.4% m/m.
Retail sales in the “control group,” which exclude autos, gas stations and building materials and are used in estimating personal consumption expenditures, rose a healthy 0.4% m/m.
- Sales were solid at department stores (+0.7% m/m), while health stores, clothing stores and non-store retailers all registered a 0.5% m/m gain. Food & beverage stores were right behind them with a 0.4% m/m gain.
- Food services and drinking places – the only services category in today’s report – made a relatively strong gain of 0.5% m/m in September
- Two categories that reported losses in September were miscellaneous stores retailers (-2.5% m/m) and furniture & electronics/appliance stores (-0.7% m/m).
Key Implications
With the final month’s sales, the third quarter gained 2.6% (annualized) – higher than we expected. However, removing price effects, this translates into 2.0% quarter-on-quarter annualized loss. As a result, we now expect personal consumer expenditures to come in just below 1% (annualized) in Q3.
More headwinds are on tap for consumers as they are entering a holiday sales. Over the coming months, several forces will weigh on retail sales. First, elevated inflation will force consumers to avoid more expensive and discretionary items. Second, the cumulative effect of tighter financial conditions will become a more prominent restraining force. Lastly, annual revisions to National Accounts reported on September 29th suggest that consumers have around 25% less spending power in the form of excess savings than we estimated in our recent report. Together, these factors tilt demand risks to the downside, suggesting that the fourth quarter rebound in real durables spending will be half of what we forecast in September.
