Strong discretionary spending lifts US retail sales in September
US RETAIL sales increased solidly in September likely as lower petrol prices gave consumers more money to spend at restaurants and bars, supporting the view that the economy maintained a strong growth pace in the third quarter.
The slightly stronger-than-expected rise in sales reported by the Commerce Department on Thursday also reflected sharp increases in receipts at clothing store outlets as well as miscellaneous store retailers. Consumers boosted online purchases and spent more at health and personal care stores.
Spending and the overall economy are being underpinned by solid income growth, ample savings as well as strong household balance sheets. Though labour market momentum has slowed, layoffs remain historically low, supporting wage gains.
Signs of the economy’s resilience likely will not discourage the Federal Reserve from cutting interest rates again next month, but will cement expectations for a smaller 25-basis-point reduction in borrowing costs.
“Strong consumer spending in September suggests economic growth in the previous quarter was solidly above trend,” said Jeffrey Roach, chief economist at LPL Financial. “Our baseline remains that the Fed will likely cut a quarter of a per cent in both November and December.”
Retail sales rose 0.4 per cent last month after an unrevised 0.1 per cent gain in August, the Commerce Department’s Census Bureau said. Economists polled by Reuters had forecast retail sales, which are mostly goods and are not adjusted for inflation, would rise 0.3 per cent. Estimates ranged from no change to an increase of 0.8 per cent.
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Retail sales advanced 1.7 per cent on a year-on-year basis in September.
Petrol prices dropped by about 12 cents per gallon between August and September, data from the US Energy Information Administration showed.
Receipts at food services and drinking places, the only services component in the report, jumped 1 per cent. That followed a 0.5 per cent rise in August. Economists view dining out as a key indicator of household finances.
Sales at clothing stores rebounded 1.5 per cent after falling 0.8 per cent in the prior month. Receipts at miscellaneous store retailers surged 4.0 per cent, while online sales climbed 0.4 per cent. Grocery store sales vaulted 1.0 per cent and receipts at general merchandise stores rose 0.5 per cent. Building material and garden equipment store sales gained 0.2 per cent. Consumers also spent more at sporting goods, hobby, musical instrument and book stores.
Gains in these store categories more than offset a 3.3 per cent decline in sales electronics and appliance stores as well as a 1.4 per cent drop in receipts at furniture outlets. Sales at auto dealerships were unchanged, while receipts at service stations dropped 1.6 per cent, reflecting lower petrol prices.
The US dollar advanced against a basket of currencies. US Treasury yields rose.
“As we have long argued, consumer spending, net hiring, and payroll income have been locked in a resilient and self-reinforcing virtuous cycle throughout this expansion, supercharged by gains in household wealth and labour supply,” said Jonathan Millar, senior US economist at Barclays.
“Durable deterioration in consumer spending would require something to meaningfully undermine this cycle, such as increased precaution by consumers that lifts the saving rate or reluctance to hire by businesses, despite solid demand.”
Retail sales excluding automobiles, petrol, building materials and food services increased 0.7 per cent last month after an unrevised 0.3 per cent rise in August. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Growth estimates for the third quarter are around a 3.2 per cent annualised rate. The economy grew at a 3 per cent pace in the second quarter. REUTERS
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