Retail Sales Show Strength

Hurricane effects inflated the headline gain for the September retail sales report which nevertheless does show fundamental strength. Total retail sales surged 1.6 percent as vehicle sales, reflecting replacement demand following Hurricanes Harvey and Irma, surged 3.6 percent. Gasoline sales, up 5.8 percent, are also a factor here reflecting the spike in pump prices following Harvey.

Yet after stripping out autos and gas, retail sales still managed a very strong 0.5 percent gain. Restaurants are a key positive, jumping 0.8 percent in the month to reverse a run of weakness in prior months. Two possible hurricane-related gains are grocery stores, up a rare 1.0 percent in the month, and building materials which spiked 2.1 percent. But the Commerce Department, which compiles this report, made no comment on any direct effects from the hurricanes.

Control group sales, which exclude autos, restaurants, building materials, and gas, are another core measure and are also very positive, up 0.4 percent. The economy is at full employment and wages are on the rise which are strong positives for consumer spending. Today's report marks a very strong finish for third-quarter consumer spending and will encourage FOMC policy makers to raise rates at their coming meetings.

Recent History Of This Indicator:
Replacement demand made for one-time strength in unit auto sales during September and together with a major lift from higher gasoline prices are expected to drive a rare 1.8 percent gain for total retail sales. When excluding autos, the expected gain remains formidable at 0.8 percent though when excluding autos and gas, expectations fall to 0.4 percent. Control group sales offer a more steady reading on underlying trends and here the consensus is very modest, at 0.2 percent. Note that sales in August were unusually weak and will make for easy monthly comparisons: down 0.2 percent overall, up 0.2 percent ex-auto, down 0.1 percent ex-autos ex-gas, down 0.2 percent for the control group.