Retail sales defied expectations in September, rising in back-to-back months and highlighting the resilience in consumer spending amid supply shortages and the surge of the delta variant.
Such strong sales numbers helped to offset some of the impact from rising prices in the Consumer Price Index for September released earlier this week.
We continued to see the impact of the enhanced child tax credit for the second month in a row in categories like food and beverage stores, clothing and accessories, and general merchandise stores, which were up by 0.7%, 1.1% and 2.0%, respectively.
These categories were also the main drivers of the gains in retail sales in August as the enhanced tax credit was rolled out in late July.
The top-line sales number increased by 0.7% on the month, following an upwardly revised 0.9% in August, while sales excluding autos were up by 0.8% compared to 2.0% in the previous month.
Auto sales surprisingly rose 0.5%, beating market estimates of a decline because of the persistent chip shortages since early this year.
It is important to note that data on sales at new car dealers and auto parts was not available, while sales of parts, accessories and tire stores were also not available. We expect that the data is ripe for downward revision, given supply chain disruption and weak auto sales because of the lack of availability.
Still, the above-expectation sales for autos can be explained by the simple fact that what comes down must come up eventually. And while sales rose, it is not a particularly encouraging story given that the industry has endured a downturn because of the chip shortage.
The inflation effects
We expect that the strong retail sales for September will entirely offset the impact from the higher-than-expected inflation number for September, which posted a 0.4% increase on the month.
That gives us the second month in a row that real retail sales—sales after adjusting for inflation—increased based on our projection. It is important to note that only real retail sales volumes matter in the government’s gross domestic product calculations, which are adjusted for inflation.
Consumers are showing that they are willing to absorb some of the inflationary pressure and that there is still a lot of room for more spending, at least in the short run.
The takeaway
The strong September report on retail sales suggests that there might be upside risk to the consumption component forecast of gross domestic product in the third quarter.
We continue to expect that strong sales will continue in the last quarter of the year as consumers are heading into the holiday season.
