Retail sales had another strong month in September, defying market expectations for a giveback. Sales rose 0.7% month-on-month (m/m) after increasing 0.9% m/m in August. The level of sales was also revised 0.4% higher in August.
The gains in retail sales were broad based in September. Despite unit auto sales falling, sales at motor vehicle and parts dealers rose 0.5% m/m, up for the first time since April. Sales excluding autos were up a healthy 0.8% m/m.
Gasoline station receipts were up 1.8% m/m, boosted by higher prices. Sales at building materials and garden equipment held on to their August gains (+0.1% m/m).
Retail sales in the “control group,” which exclude autos, gas stations and building materials rose a solid 0.8% m/m. Sales were up strongly for clothing (+1.1% m/m), sporting goods and hobbies (+3.7% m/m) and general merchandise (+2.0% m/m).
Food services and drinking places made only modest gains in September (+0.3% m/m), as fears of the Delta variant likely kept some customers at home. This category has been posting growth since February 2021.
Key Implications
September’s retail sales report was a pleasant surprise. Consumer demand is proving resilient to the Delta-wave of Covid-19, and the winding down of more generous pandemic unemployment benefits.
Over the coming months, there are a couple of forces that are expected to weigh on retail sales. First off, services spending has significant pent up demand, and consumers are expected to shift spending towards services and away from retail goods. Second, supply constraints, most notably for motor vehicles, but also other tradable goods, are preventing people from making purchases. The latter was evident in falling vehicle sales in September. The first is expected to be a force restraining spending on goods over the medium term, and is why we have very little growth in durables spending in our forecast.
