Weakness In Retail Sales Exaggerated By Low Gas Prices

Weakness at gasoline stations, where low prices are depressing sales totals, continues to exaggerate weakness in retail sales where the headline inched only 0.1 percent higher in September. Gasoline sales fell 3.2 percent in the month, excluding which the headline looks far more respectable at plus 0.4 percent.

And there are plenty of tangible positives in the data including a third straight solid gain for motor vehicles, at plus 1.7 percent in September, and a second straight outsized gain of 0.9 percent for restaurants. Both of these are discretionary categories and point to underlying consumer strength. Clothing stores are also posting strong gains, up 0.9 percent despite negative price effects from lower import prices.

Price weakness is not only pulling down gasoline sales but also sales at food & beverage stores which fell 0.3 percent. But there are signs of consumer retracement in the September report with the general merchandise category, which is very large, down 0.1 percent, and with health & personal care stores unchanged. Building materials fell 0.3 percent with electronics & appliance stores down 0.2 percent.

Looking at adjusted year-on-year rates helps clarify the trends. Excluding gasoline stations, retail sales are up a very respectable 4.9 percent which is well above the less impressive 2.4 percent gain for total sales. Sales at gasoline stations are down a year-on-year 19.7 percent. Leading the positive side are motor vehicles, up 8.8 percent, and restaurants, up 7.9 percent -- both robust gains. But for core sales, that is ex-auto ex-gas, the gas effect is still evident with the year-on-year rate at a moderate plus 3.8 percent for a 1 tenth decline from August.

One of the very biggest positives for the consumer right now, aside from strength in labor demand, is the weakness in pump prices, which however in this report, where dollar totals are tracked and not sales volumes, turns into a negative. Still, the headline is weak and will likely lower third-quarter GDP estimates -- but for Fed policy, because the weakness is skewed due to gas prices, the results are harder to assess and may prove neutral.

Recent History Of This Indicator:
Forecasters don't see much strength for retail sales, at a consensus gain of only 0.1 percent for September. Auto sales, based on strong unit sales, are expected to be a positive, excluding which the consensus is minus 0.1 percent which reflects price weakness at gas stations. Excluding both autos and gas, the outlook is more upbeat with another respectable gain expected, at plus 0.3 percent. Consensus outcomes in this report would not turn up the heat for a Fed rate hike, but there is uncertainty in the sample with a wide spread for the headline and ex-auto readings.