Retail Sales: Down to the Wire?

We look at the mixed results underlying the positive headline retail sales numbers as trouble keeps brewing on the consumer credit front.

Sep 17, 2024

Headline monthly retail sales in August came up positive at 0.1% despite expectations of contraction with core retail sales being a bit stronger at 0.3%.
The positive headline number hides a mixed bag with weakness down the spectrum as another month of price relief at the gas pump did not translate into spending elsewhere with over half the core retail lines down on the month.
Recent consumer credit reporting across companies, credit report bureaus, and Fed data are showing an incrementally stretched consumer with those in the lower income brackets feeling the most pressure. Spending from more affluent consumers may keep the retail sales ball rolling but also mask the trouble that is brewing.
As far as the rate cuts for the cycle set to begin tomorrow, a path that allows healthy payrolls to keep coming will be key for consumers up and down the spectrum. Minor relief on interest payments will help but keeping dollars flowing is the main event as new workers enter the market or less leveraged consumers keep the party going to offset the credit impaired subset.

Retail Sales for August at 0.1% come ahead of expectations for a slowing consumer and possible retail sales contraction. Sanguine views of the consumer continue to leave room for growth to be an upside surprise, but any fade in forward-looking payroll expectations would feed the consumer sector skeptics.

This latest Retail Sales report comes on the heels of CPI starting to normalize relative to the wild ride of the past few years. Better inflation prospects was a main driver for consumer sentiment edging upward this past month after a sharp decline after May. Even if a better inflation outlook from the point of view of the consumer may have kept the spending going into this month, PCE outpacing DPI does not leave a long savings leash before expectations of a fade materialize. Sustainability of spending patterns is what is driving questions around how long the consumer spending spree can last in feeding GDP and jobs. Job growth has continued to be positive even if moderating the past few months and “dollars in” will continue to translate to “dollars out” whether discretionary or non-discretionary.

The above chart breaks out key cuts of the retail sales report and the line item details that accompany them. We see Retail Sales ex Autos line similarly at +0.1% for the month as the Autos ex parts line is down -0.1% MoM was not enough to move the needle up. That Autos ex parts line comes after a volatile June and July and stayed near the all-time highs. Core retail had another good month at 0.3% and has done much better on the year than headline with lower gas prices this year allowing a little room to shift spending around.

Looking under the hood of core retail sales is a much more mixed picture with 4 positives to 5 negatives. Of the larger weightings, Nonstore retailers (i.e. online shopping) and Health and Personal care were showing more growth. Food and Beverage stores were a negative this month with no uptick in restaurants and bars possibly signaling further evidence of squeezed budgets. We see it as indicative of more price sensitive shopping from consumers at the grocery store and aligns with the possibility that consumers are starting to feel the budget squeeze. We don’t see that as alarming just yet given the continued strength of the nonstore retailers line and overall spending but some of the early warning signs are showing.

Kevin Chun, CFA kevin@macro4micro.com

Glenn Reynolds, CFA glenn@macro4micro.com

Macro4Micro

Discussion about this post