Consumers continue to spend

October 17, 2024

September retail sales rose 0.4%, stronger than expected, after rising 0.1% in August. The consensus estimate was up 0.3%. Excluding the impact of automobile and gasoline station store sales, which showed no change and down 1.6%, respectively, retail sales surged 0.7%. That was the second strongest reading this year and testament to a resilient consumer who refuses to fade despite affordability concerns and election uncertainty. The September employment report provided a jolt of optimism for households, which showed stronger wage growth, a lower unemployment rate and more than one-quarter million new jobs created.

Spending on motor vehicles and parts did not show up in the September retail sales data despite unit sales picking up sharply to 15.8 million from 15.1 million in August on an annualized basis. Sales of motor vehicles and parts were unchanged in September. That is on top of new vehicle prices rising 0.2% in September, according to the CPI report. Collectively, that should have meant a higher value for total sales. For 2024, the swing between the August and September seasonal adjustment factors is the largest this year, which is unusual. In recent years, the largest difference typically occurred in January to smooth the difference between holiday sales in December and weak sales in January. All this is to say that the flat reading in September motor vehicle sales is suspect, due to a potential seasonal adjustment issue.

In any event, there was broad-based strength in the September retail sales data outside of autos. Clothing store sales rose 1.5%, health and personal care store sales rose 1.1%, and food and beverage stores increased 1%. Miscellaneous store sales, which include florists, pet stores and stationary stores, reached an outsized gain of 4%, the largest increase in a year.

General merchandise stores rose 0.5%, outpacing the 0.4% gain for department stores. That suggests that ongoing discounting by big-box retailers continues to drive shoppers into their warehouses. Online sales experienced 0.4% growth. Diners frequented more bars and restaurants as spending jumped 1%, the largest increase this year and easily outpacing the 0.6% rise, which was the previous high.

Core retail sales, otherwise known as control group sales which feed into consumer spending for GDP, rose 0.7% in September after an upwardly revised 0.3% in August. That suggests spending momentum by the consumer strengthened into the end of the third quarter, which poses upside risks to our current GDP estimate of 2.6% growth on an annualized basis.

There were some areas of weakness in September. Electronic store sales fell 3.3% while furniture store sales declined 1.4%.