Retail Sales Show Moderate To Strong Growth

The first hard indication on what to expect for fourth-quarter consumer spending is positive but not as enormously positive as October's 0.8 percent headline surge in retail sales would suggest. Control group sales, which importantly are inputs into personal consumption expenditures and which exclude categories that were especially strong in October, rose a more moderate 0.3 percent with September for this reading revised 2 tenths lower to also a 0.3 percent gain.

Control group sales exclude autos which were very strong in October, rising 1.1 percent following several months of weakness. Sales for the control group also exclude building materials which surged nearly as much as autos, up 1.0 percent in what is a good indication for residential investment. Gasoline is also not included in the control group and here sales jumped 3.5 percent in the month though this reading for November is very likely to reverse given the ongoing decline in the price of oil.

Showing an outright decline in October are restaurant sales, down 0.2 percent which follow 1.5 and 0.1 percent declines in the two prior months. Restaurants had been a leading force for retail sales and the recent reversals hint at an ebbing in consumer enthusiasm. Furniture sales, in contrast to building materials, also fell in the month posting a 0.3 percent decline.

Yet October's report is definitely positive with solid gains of 0.5 percent for general merchandise that includes a very welcome 0.5 percent gain for the department store subcomponent in what represents a solid bounce following unchanged readings in the prior two months. Nonstore retailers, which track e-commerce, posted a useful 0.4 percent rise which, however, is a bit subpar for this reading.

October is the last month before Christmas shopping takes hold and the initial indication for holiday spending is healthy but not extravagant. Revisions for September were generally not favorable with overall sales now at minus 0.1 percent vs an initial 0.1 percent. The downward revision to September control group sales may trim back revision estimates slightly for third-quarter GDP.