- Retail and food services sales advanced by 0.8% m/m in September, following an unexpectedly strong gain in the prior month. Adjusted for inflation, sales volumes rose by just 0.1%.
- The headline gain was heavily driven by an outsized jump in sales at gasoline stations as gas prices rose by over 6% on the month. Meanwhile, sales at auto and parts dealers edged up by 0.2%, while those at building materials and garden equipment stores edged lower (-0.6%).
- Control group sales, which exclude the volatile gasoline, auto, building materials, and garden equipment categories, rose by a modest 0.1% m/m. Performance was somewhat mixed across categories. On the positive side, sales rose at furniture and home furnishing stores (+1.3%), electronics and appliance stores (+0.6%), and health and personal care stores (+0.7%). However, miscellaneous store retailers (-3.0%), sporting goods, hobby and bookstores (-0.5%), and general merchandise stores posted declines, and sales at clothing stores were flat. Sales at non-store retailers, which mainly include online merchants, rose slightly (+0.3%) following a sizeable jump in the prior month.
- Spending at bars and restaurants—the report’s only service category—posted another sizeable gain in September coming on the heels of hefty gain in August and are up 7% year-over-year.
Key Implications
- Retail sales continued to advance in September, although the gain was partially driven by higher prices, particularly at the pump. Core and inflation-adjusted sales were soft, pointing to some moderation in underlying spending momentum. That said, the softness in September follows a strong gain the prior month, while another robust increase in spending at bars and restaurants suggests consumers remain willing to spend on discretionary items. All in all, despite some signs of moderation, consumer spending is tracking a robust 3.6% annualized in Q3, only a touch slower than the 3.8% pace recorded in Q2.
- That said, the pace of spending is likely to cool over the coming quarters as households face a growing number of headwinds, like soft real income growth, a low and declining saving rate, high energy costs and elevated interest rates. While the labor market and household wealth gains should continue to provide support, these tailwinds may not be enough to fully offset the growing pressures on purchasing power.
