Somehow, Americans Keep Spending

US retail sales unexpectedly rose in September, data out Friday showed.

Although economists expected to see modest retrenchment, spending instead jumped 0.7% last month. The median estimate called for a 0.2% decline (figure below).

It was the second straight monthly upside surprise. Not only that, the previous month’s gain was revised higher.

The ex-autos number beat handily too, printing 0.8% versus an expected 0.5% increase. The control group rose 0.8% which, as BMO’s Ian Lyngen noted, is “encouraging for the Q3 real growth outlook.”

Recall that while August’s numbers suggested Americans were still spending, there was evidence that the Delta wave kept would-be diners and drinkers away from restaurants and bars. In September, spending at food services and drinking places rose 0.3%, while the prior month’s unchanged reading was revised to show a 0.2% increase.

The familiar figure (above) is updated with Friday’s release. If you squint, you can see the black line barely ticking higher for August and September.

This likely ensures a November taper announcement from the Fed. “A strong performance from retail sales coupled with surging spending on travel and leisure suggests that the economy is re-accelerating after the recent COVID-related slowdown,” ING’s James Knightley remarked, in a note called “Q3 soft patch is over.”

Knightley was somewhat incredulous, though, writing that,

We were certainly on the more pessimistic end of expectations given unit auto sales slowed from an annualized 13.06mn rate in August to 12.18mn in September due to the semi-conductor chip shortage that has blighted the industry. Yet somehow the value of motor vehicle and parts sales rose 0.5%. Either prices are surging far faster than as measured by CPI or there are some data problems.

Data problems? From the government? Say it ain’t so.

Whatever the case, the market will take it, especially at a time when equities were predisposed to rallying anyway.

It’s (almost) always a mistake to doubt Americans’ predisposition to spend, although that comes with the caveat that we should be careful to avoid trivializing the plight of those whose spending represents a depletion of “lifeline” savings for necessities as opposed to discretionary spending funded by ample cash buffers. A new poll suggests one in five Americans lost their entire savings during the pandemic, for example.

As for Friday’s data, Bloomberg’s Cameron Crise wrote that although nominal sales aren’t “quite at the peak registered in April,” they’re “holding steady at an elevated level.” He continued: “Maybe those stagflation arguments will really gain ground when the YoY figures roll over hard next spring.”