U.S. retail sales beat expectations for second month in a row

·2 min read

Data: FRED; Chart: Axios Visuals

The strength of retail sales data has shocked prognosticators for the second month in a row.

What’s new: Although September spending was lower than the peaks reached in the post-vax, pre-Delta variant honeymoon economy of the spring, consumers still spent more defiantly than economists had expected.

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  • Total retail sales grew 0.7% in September from the prior month, compared with consensus estimates for a decline of 0.2%, according to government data out Friday.

  • The same thing played out in August when sales gushed in at a revised 0.9% increase relative to expectations for a 0.7% decline.

Why it matters: Higher prices helped push up the absolute spending numbers. But inflation or not, consumers were willing to fork over cash, which bodes well for the Q4 economy and the coming holiday shopping season.

The intrigue: Consumer sentiment surveys have continued to flummox forecasters.

  • The Conference Board's closely watched Consumer Confidence Index declined in its last three readings, and the University of Michigan Consumer Sentiment Index has been plummeting since July.

  • “I think there was probably too much emphasis put on some of those surveys,” Yung-Yu Ma, chief investment strategist at BMO Wealth Management, tells Axios.

The big picture: Inflation led to consumer prices that were 0.4% higher on average in September than they were in August — or more than half the rate of retail sales growth.

  • An extreme example of how this plays out: Spending on automobiles was up 0.5% during the month. But unit sales of vehicles were down 6.2%, according to previous government data.

  • In other words, people weren't buying more cars — just paying more for fewer cars.

What they're saying: “Inflation is going to have an effect, but [the numbers] still point to healthy demand ... spending isn’t falling off,” Ma says.

  • “The retail sales numbers are encouraging in the face of elevated Delta variant cases in September and supply chain issues many companies are facing,” LPL Financial equity strategist Jeffrey Buchbinder said in a Friday research note.

Yes, but: The positive spending data is probably not enough to move the needle back up on overall Q3 consumption and growth estimates, wrote LPL analysts.

What’s next: The crucial holiday spending season.

  • “I think a lot of the challenges with the holiday season are simply going to be more supply-related. [People] have money, and want to spend savings that’s been built up,” Ma says.

Go deeper: Grocery stores could face supply shortages ahead of holidays

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