September retail sales were much stronger than expected, and there were upward revisions to both July and August, thereby making last month’s increase even more impressive. Headline sales rose +1.1% after rising +1.2% in August and +0.7% in July. August and July were revised up +0.3% and +0.1%, respectively. Excluding autos sales also increased +1.1%. Excluding autos and gas, sales advanced a healthy +0.9% after a +0.3% gain in August and a +0.9% gain in July. The strongest subcomponent in the report was electronics and appliance stores which rose +4.5%, the largest increase since October 2011 (+5.3%). Ostensibly, this category was boosted by sales of the IPhone 5 but the impact on overall retail sales were relatively scant. Bank of American Corp (BAC) Merrill Lynch boosted estimates for third quarter to 1.6%, up from 1.4% pre-report. RBS bumped up their Q3 real GDP forecast from +1.8% to 2.1% Citigroup analysts notes that, ‘while seasonal and calendar adjustments can make monthly retail sales data seem quite divorced from industry data, the message of a stronger-than-expected 3Q is not altered by it.’ However, they do not provide an estimate for Q3 GDP. CIBC research has raised their third quarter GDP estimates to 2.0% based on the retail sales numbers.
For example, retail control which is directly used in the calculation of GDP—control is defined as retail sales less autos, building
materials and gasoline—was up +0.9% in September. But if we exclude the electronics and appliances category, spending still increased a solid +0.8%. Over the last three months, retail control less electronics and appliance store sales have risen at a +7.5% annualized rate, the fastest pace since March (+8.1%)Therefore, it is fair to state that underlying consumer spending remains decent, enough to remove some of the near?term downside risk to the economy.
Over the course of the month, nationwide gasoline prices averaged $3.83 per gallon. That is roughly 4 cents higher than August,
contributing to the 2.5% mom increase in gasoline station receipts as consumers were forced to pay more at the pump. Netting out gasoline station sales, spending was up 1.0%.
Auto sales increased by 1.3% mom while building material sales rose 1.1% over the course of the month. The large gain in autos reflects pent up demand and ease access to car loans which have helped drive auto sales.
Sept retail sales at Home Improvement (HI) and Consumer Electronics/Appliance (CE) retailers were +4.5% y/y and +2.5% y/y. For HI, Sept results were an acceleration from the +2.9% y/y in Aug and the +1.5% y/y in July. Additionally, the threeyear
stack accelerated in Aug as well. Similar to HI, CE also experienced an acceleration sequentially in y/y retail sales in Sept. CE growth was +2.5% y/y and was up from the -2.4% y/y for Aug.
Earlier, the New York region’s Empire State Manufacturing index was reported at -6.6 in October vs -10.4 in September. While a nominal improvement, the index fell to 47.7 vs 49.5 on an ISM-weighted basis (see figure 2). Declines in orders subsided while production fell.