Retail sales post big gain in September as consumers show unexpected strength

Key Points
  • Headline retail sales rose 1.9% in September, much better than the 0.7% Dow Jones consensus estimates.
  • Excluding autos, the increase was 1.5%, ahead of the 0.4% expectation.
  • Clothing and accessories led the gains while electronics was the only negative sector.
Retail sales rise 1.9% in September, vs 0.7% expected
Retail sales rise 1.9% in September, vs 0.7% expected

Consumers spent at a much faster pace than expected in September, with retail sales rising 1.9% in a sign that the U.S. economy's biggest driver remains healthy.

Economists surveyed by Dow Jones expected sales to increase 0.7%, up from a 0.6% rise in August.

Excluding autos, the gain amounted to 1.5%, which also was better than the 0.4% estimate.

Clothing and accessories led the advances, rising by 11%, while sporting goods, music and books jumped 5.7%. Electronics and appliances was the only major sector that was negative, dropping 1.6% from the August levels.

Markets reacted positively to the news, with Dow futures implying an opening gain of about 126 points.

The report comes amid concerns over the direction of an economy slowed by the Covid-19 pandemic. Consumers drive about two-thirds of economic activity and they retrenched sharply in the second quarter, which saw GDP fall by an unprecedented 31.4%.

However, economists expect that number to turn around when third-quarter growth is announced at the end of the month, with the Atlanta Fed's GDPNow tracker pointing to a 35.2% increase. That would be more than double any single-quarter growth going back to at least 1947.

Beyond that, concerns are rising that the fourth quarter could see a marked slowdown as coronavirus cases continue to rise. The holiday shopping season will be a key for what kind of momentum the U.S. sees as the calendar turns into 2021.

The unexpectedly big gain in spending comes after months of historically high savings as consumers retrenched due to the Covid-19 scare. The personal savings rate peaked at 33.6% in April and remained at 14.1% in August, the highest pre-pandemic rate since June 1975.

"The strength in August sales is welcome, and consumers in aggregate have the resources — in the form of the huge increase in savings deposits built up since the spring — to finance a strong holiday season," wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The problem is the virus. Cases are rising at only a modest pace in the more populous states, but we can't be sure that will continue, and the message from states where cases have risen to very high levels is that economic activity begins to suffer very quickly."

A drop in electronics sales could be seen as one harbinger of a slowdown. The September 2020 total also represented a decline of 6.4% from the pace of a year ago.

Food and beverage sales were flat for the month while furniture-related sales were up 0.6%,

Motor vehicle sales were a significant point of strength, rising 3.6% on the month and 10.9% from September 2019. That came as prices for used cars and trucks rose 6.9%, the largest monthly increase since February 1969.