After disappointing in September, retail sales advanced by 0.8% m/m in October – well ahead of expectations for a 0.5% gain. The weak September print was revised down further to -0.1% from 0.1% gain reported previously.
Sales at autos and parts dealers and at gasoline stations rose handsomely on the month, increasing by 1.1% and 3.5%, respectively. Sales of building materials also picked up (+1.0%), perhaps capturing rebuilding efforts following recent hurricanes.
Meanwhile, sales at food services and drinking places fell again in October (-0.2%), marking a third consecutive monthly decline after a strong performance in the first half of the year.
Excluding the above volatile categories (gas, autos, building materials, and food services), the so-called ‘control group’ used in calculating GDP rose more modestly than the headline, advancing by 0.3%. September’s gain was also pared back to 0.3% from 0.5% increase initially reported. Delving into the details, most categories rose on the month. Sales at electronics & appliance (+0.7%) and clothing & accessory (+0.5%) stores increased; food and beverage (+0.3%) and sporting goods (+0.5%) stores also did well.
Both bricks-and-mortar and online stores had a good run last month. Sales at general merchandise stores rose by a 0.5%. Online retailers fared much better, with sales up 1.5% on a month, and a whopping 12.6% from a year ago level.
Key Implications
Overall, this was good report, delivering the anticipated rebound in sales and an above consensus headline print. Negative revisions to the prior month’s data and the below consensus gain in ‘control group’ temper the enthusiasm somewhat. The downward revisions to September mean a weaker hand-off to the fourth quarter, and consumer spending is now looking slightly weaker than before, but still respectable at 2.4% in real terms.
Looking ahead, consumer spending is expected to be a solid support to growth in U.S. economy. However, after expanding at a blockbuster 3.9% annualized pace over the last two quarters, we do expect spending to cool at a more moderate 2-2.5% pace, as the impact from tax cuts fades.
