The U.S. Census Bureau reported overall retail sales grew 0.7% month over month in September vs. forecasts for a 0.2% decline, while retail sales excluding autos and gas also saw solid gains, rising 0.7% month over month vs. estimates for a 0.4% increase. On a year-over-year basis, sales rose a solid 13.9%, slightly lower than August’s 15.4%. Excluding autos and gas, sales rose 15.6%. Total retail sales rose over the past two months and three of the past four, as shown in the LPL Financial Chart of the Day, despite the impact of the Delta COVID-19 wave this summer.
Positive revisions to August retail sales (from 0.7% headline to 0.9%, and from 2.0% to 2.1% ex. autos and gas) provided further evidence of consumers’ resilience in the face of the latest COVID-19 wave, not to mention supply chain disruptions that limited supply of certain goods.
“The retail sales numbers are encouraging in the face of elevated Delta variant cases in September and supply chain issues many companies are facing,” explained LPL Financial Equity Strategist Jeffrey Buchbinder. “The shift away from services to goods last month makes sense as a pandemic response but the next uptick in sales is likely to be led by services if COVID-19 cases continued their recent convincing decline as we expect.”
But we don’t want to dismiss the major impact Delta has had on consumers. After a 12% increase in consumer spending in the second quarter, consumer spending may only grow 2-3% annualized in the third quarter, based on Bloomberg’s consensus forecast from economists and data from the Bureau of Economic Analysis.
The mix shift in September also reflects Delta’s impact. The upside to forecasts reflected a shift from services to goods, consistent with elevated Delta COVID-19 cases during September that weighed on services activity. Auto sales rose 0.5% month over month despite the ongoing chip shortage. Merchandise sales rose 2%. Clothing rose 1.1%. We expect services spending to pick up in the fourth quarter as the next phase of the reopening occurs.
These are solid numbers in the face of several challenges. Consumers still have significant excess savings and are enjoying rising wages. The job market continues to heal as COVID-19 cases decline. Inflation is eroding some spending power but we remain in the transitory camp and see inflation pressures easing over the next several months.
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