Price effects likely caused softness in US September retail sales

US retail sales rose 0.1% m/m in September. However, the details of the report painted a softer picture of nominal consumption spending than expected. 

The retail control group, our preferred measure of core retail sales, was notably softer than expected in September (-0.1%, forecast: 0.5%) and revised lower in August (0.2%, initial: 0.4%). Much of the unexpected softness in September retail sales was likely due to price effects, in our view. 

Gasoline station sales fell 3.2% m/m in September on lower retail prices. As was the case earlier this year, sharp declines in retail gasoline prices can weigh on core sales given the increasingly widespread sale of gasoline at large retailers that fall within the general merchandise category. 

Furthermore, the broad-based softness in this morning's producer price report supports the thinking that the softness in nominal sales was likely due to lower goods prices. Electronics, food and beverage stores, general merchandise, and non-store retailers all reported modest declines in sales. 

Offsetting this softness, restaurant sales were up 0.7% m/m, suggesting that consumers have not meaningfully pared back their discretionary spending. Continued gains in this category, along with strong sales of homes and motor vehicles, keep our outlook of a healthy US consumer intact.

"The weaker-than-expected core retail sales in September, along with downward revisions to August, trimmed the estimate of Q3 real private consumption growth to 3.4% from 3.8%. This, in turn, trimmed the Q3 GDP tracking estimate two-tenths, to 1.0%", says Barclays.