Retail Sales: No Disturbance in Retail
We look at a mixed month for retail sales as the post-CPI rally muddles along.
Retail sales were weaker as expected, but the numbers did not fade enough to spook the fundamental story on PCE or tell the Fed “no more inflation worries.”
With a frosty PPI report supporting this week’s prevailing inflation sentiment, retail sales showing a quite modest increase ex-autos dovetails with the recently muted payroll adds and give some more days to the post-celebration CPI effect that is fresh in everyone’s minds.
The soft-landing crowd and no hike crowd both have something to work with again today.
Retail sales had set off a lot of noise last month and rattled the curve (see Retail Sales: The Consumer is Alive and Well 10-17-23), but Oct 2023 numbers can help a few different schools in the cyclical and monetary debate. After such a heady rally in the UST and equities, the market might be looking for any reason to get nervous around the idea they overreacted to recent CPI or jobs data.
The retail number was soft enough to not rattle UST anxiety or steepening fear, but sales were up slightly ex-autos and had enough demand to keep retail watchers comfortable that the holiday season could bring more modest growth signals rather than a disaster.
Such muted months lead to a lot of line-by-line mindreading on what the changes might mean for how consumer behavior could be shifting with categories such as furniture in the post-pandemic period and even the timing of online purchases and related holiday planning. Gasoline (refined product prices) is easy to explain while autos are trickier with supplier chains improved but financing costs sharply higher and incentives a case-by-case exercise on the heels of some UAW disruptions.
In the end, a small increase in retail ex-autos and a small increase in core retail keep the slowing of the consumer story going rather than allowing bears to extrapolate consumer confidence lags into a PCE contraction expectation.
The last set of PCE numbers were solid for consumption (see PCE Sept 2023: Consumption Strong, Inflation Steady 10-27-23), and we get the next set at the end of the month along with the next dose of PCE inflation data.
Contributors:
Glenn Reynolds, CFA glenn@macro4micro.com
Kevin Chun, CFA kevin@macro4micro.com