Retail sales were essentially flat in September, rising 0.1%, while falling well short of economist expectations for a gain of 0.7% over August results. Excluding vehicle and gasoline sales, there was no gain for the month.
Despite a weaker monthly result, year-over-year sales growth came in at 4.7%, continuing the solid trend for the sector.
Despite the disappointing headline result, there were definite pockets of strength. Furniture and home furnishing stores posted a 1.1% gain for the month, while sales at electronic and appliance stores rose 0.9%. Car sales increased 0.8% for the month. Better sales in those higher-ticket goods illustrates the confidence of the consumer sector and a willingness to spend, despite rising interest rates that act as a headwind.
Unsurprisingly, the secular trend toward online shopping remains intact as well. Sales by nonstore retailers surged 1.1% and were up 11.4% in the past year, continuing the long-term trend of online commerce reshaping the way that consumers spend.
With so many underlying positives, the weakness of the top-line result may be surprising. Far and away, the story was in the sharp decline on spending at restaurants, which fell by 1.8% for the month – the largest drop in close to two years. The slump in restaurant sales masked an otherwise generally positive report for the retail sector.
Generally, results had been tracking positively for the restaurant sector, with same store-sales up despite some decline in foot traffic compared to 2017. While the degree of impact is hard to measure, restaurant sales were certainly negatively impacted by the disruptive effects of Hurricane Florence. When hurricanes Harvey and Irma hit the southern U.S. last year, sales dropped even more sharply before rebounding in the months that followed.
The bottom line is that a fair amount of noise exists in the September retail sales report, but the top-line result probably understates the state of the retail sector. The headwinds that held sales down for the month appear to be transitory. The underlying strength and confidence of the consumer still appear to have legs, and consumer spending should remain robust in the coming quarters. As such, we expect retail sales should bounce back in the coming months.
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