Americans Refuse To Stop Spending

The US consumer is unbowed, undaunted and unperturbed, a closely-watched update on nominal spending across the world’s largest economy suggested.

Retail sales in the US rose 0.7% last month, more than double estimates and ahead of the highest guess from nearly 70 economists. The range was -0.5% to 0.6%. (Imagine being the -0.5% guy or gal on Tuesday.)

Notably, August’s headline print was revised sharply higher to show a 0.8% increase. July was revised up too.

Taken together, the figures paint a picture of accelerating consumption, which I suppose isn’t all that surprising given the still resilient labor market.

Excluding autos, sales likewise rose 0.6%, triple the 0.2% ex-autos estimate. Most notably, the control group rose 0.6%, a huge beat. Economists were looking for a minuscule 0.1% increase. That overshoot is relevant for Q3 GDP estimates.

Just eight of 13 categories showed a gain, though. Nonstore retailers were strong, with a 1.1% increase, as was the food services and drinking places category, which posted a 0.9% gain. That’s the only services sector category in the report.

Plainly, the blistering update on spending was a hawkish (and bond bearish) development. The US consumer is supposed to be faltering by now, although I’d note that recent revisions left analysts to ponder the possibility that Americans are actually still sitting on a sizable cash cushion, even if most of it is concentrated in the accounts of people who are least likely to spend it (i.e., the wealthy).

Allegedly, the resumption of student loan payments this month and dwindling savings buffers (which, as noted, aren’t as depleted as initially thought) will dent spending going forward. Consumer sentiment is poor (or so we’re told) and geopolitical headlines are ominous. But month after month, Americans continue to demonstrate the folly in betting against consumerism.

Note that Bank of America’s Q3 results showed that although charge-offs in the bank’s consumer unit were up, they’re still below pre-pandemic levels. BofA debit card volume hit a new record during the quarter.

While there are convincing arguments that we’re all whistling past the recession graveyard, the reality is that households are insulated from rate hikes by virtue of an almost secular decline in variable rate debt.