Retail Sales Oct 2024: Durable Consumers

We look at this month’s retail sales report as it still signals a strong consumer with some pockets of weakness in discretionary items, but little evidence to tip any scales on Fed policy calculus.

Nov 15, 2024

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Headline retail sales increased by +0.4% vs. Sep 2024, made more impressive with upwards revisions to Sep 2024 numbers raising the comparative bar.
Strong spending on Autos and Restaurants and Bars were key drivers for another positive print, offsetting pullbacks in smaller discretionary categories that fell short of last month.
Hurricane effects will fully emerge in the coming months, with the modest bump to Building Supplies this month likely a preview of activity in related areas.
The market is already looking beyond another -25bps cut for December after a CPI print that came more or less at consensus with today’s retail sales is not ringing any alarm bells to change the narrative.

The above chart shows the recent path of monthly retail sales changes with another positive print for total retail sales at +0.4%. After a rocky start in January where concerns started to mount around strength of the US consumer, the recent results have pushed up to 2.2% growth YTD with two more months to go. It is a solid moderate growth story that does not necessitate immediate attention from the Fed.

Looking forward, the possibility for high tariffs and mass deportations are two of many tough handicapping exercises that the market is wrestling with. Health care policy presents meaningful household budget risk if the ACA comes under siege, but that is a long, slow process.

The uncertainty around the post-election menu of risks is smaller with a winner in the seat, but the more spontaneous nature of Trump’s policy actions will keep the range of outcomes wide on tariffs, trade, and inflation of retail goods. The possibility of the inflation wildcard reigniting is one that will be watched closely, and the 2022 numbers above give a hint as to what that might look like since such an outcome would bring volatility and this time could also bring a White House vs. Fed clash bringing the subjugation of the Fed to the front burner.

The consumer is still in good shape now, but fundamentally worse than during the immediate post-pandemic period on rates and affordability in a range of important sectors (housing, automotive) with cumulative inflation already taking a large toll on wallets and sentiment. Inventory planning and order books have an element of roulette at this point depending on the sourcing policies of any given retailer and specialty operators (China vs. Vietnam etc.). The fates of many shoppers are in the crosshairs on the risk of how mass deportation and border tariff rates unfold, what it mean in retail from the cost of inventory (tariffs) to the range of shoppers who get spooked (or shipped out).

We list the key line items and retail sales subcategories in the table above. The healthy headline number is driven by the +1.9% MoM growth for Autos ex Parts with both Restaurants and Bars and Building Supplies also seeing improvements. Continued services spending is a positive signal around the short-term outlook of consumers and their willingness to still spend on experiential subsectors such Restaurants and Bars.

There is a small negative above as the -0.1% MoM Core Retail underscores that not all is rosy. However, this may just reflect the trade-off in purchasing across categories with lumpier autos purchasing crowding some other categories out. Autos had another strong October, but there is a cloud still hanging over 2025 from affordability on price, rates, and incentives strategies to tariffs and production risks tied to Mexico and supplier chain disruptions.

Overall, the retail sales report this month reflects a robust consumer that remains healthy. With election results in hand, there may be some shuffling of household planning and recalibration of spending, but the aggregate consumer as a whole is hard to budge until the policy games begin in earnest after inauguration.

Kevin Chun, CFA kevin@macro4micro.com

Glenn Reynolds, CFA glenn@macro4micro.com

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