US Retail Sales Surprisingly Edge Higher in September

On Friday, the US Commerce Department reported that US retail sales rose in September, which surprised economists, most of whom anticipated a decline. Still, investors are worried that supply bottlenecks might negatively impact the holiday shopping season, given the shortage of goods.  

While the upbeat retail sales data definitely bodes well for the US economy, overall consumer spending likely stagnated in the third quarter.

Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, told Reuters:

The solid retail sales report reflects both consumer resilience and escalating prices. The main concern now is that supply-chain disruptions and microchip shortages appear to be spreading, limiting selection and tamping down goods demand.”

The Commerce Department said that retail sales rose 0.7% in September, following an increase of 0.9% in August, which was revised higher from the initial reading of 0.7%. Economists expected the indicator to decline by 0.2%.

Consumers were ready to spend more thanks to the stimulus payments and rising wages.

Earlier this week, the Labor Department data showed that consumer prices had increased by 0.4% on a monthly basis in September. This suggests that real retail sales (inflation-adjusted) rose 0.3% in September.

Retail sales represent an indicator that reflects the purchases of finished products and services by consumers and businesses. These goods are ready for sale and have made it to the end of the supply chain. An increase in the indicator suggests high demand from consumers, which is good for the economy and which usually supports the US dollar versus majors.

There are 13 retail sales categories, including:

  • Vehicles (both new and used) and auto parts
  • Online retail sales
  • Department stores
  • Clothing
  • Electronics and appliances
  • Food and beverage sales (including grocery and liquor stores)
  • Building materials and garden supply stores
  • Sporting goods
  • Health and beauty shops (including drugstores)
  • Furniture stores
  • Hotels, restaurants, and bars
  • Gas stations
  • Miscellaneous

Auto and auto parts stores make the largest category. There is also the so-called core retail sales report, which doesn’t include auto dealers and gas stations.

Core retail sales ascended last month by 0.8%, while analysts expected an increase by 0.5%, following a surge of 2.0% in August.

Automakers had to reduce production because of the ongoing global shortage of microchips. The prices of cars are increasing due to the semiconductor shortage, which also hit electronics and appliances.

Thus, consumers might face more challenges in the coming months due to the supply chain disruptions, increasing prices, and a slowing labor market recovery (as shown in our latest post covering the Nonfarm Payrolls report).

Aneta Markowska, chief economist at Jefferies LLC, told the Wall Street Journal:

“The shipping bottlenecks will become more of an issue in November and December when you have that spike in holiday-related sales.”

Consumers will likely have limited choices during the holiday season because of congestion at ports due to a shortage of workers. US President Joe Biden said earlier this week that the country’s two busiest ports – Port of Los Angeles and the Port of Long Beach – will extend round-the-clock operations to unload about 500,000 containers expected to come from cargo ships offshore.


In a separate report on Friday, the University of Michigan’s survey showed that consumer sentiment declined further in early October due to the ongoing pandemic and concerns over the debt ceiling. The surprising increase in September retail sales might also be caused by the fact that consumers may have started the holiday season shopping earlier than usual.

Veronica Clark, an economist at Citigroup, explained:

Strength this month and next could be a result of well-telegraphed supply shortages leading consumers to begin holiday-season shopping earlier than usual. This effect, as well as potentially binding supply limitations, could subsequently result in a drop in retail sales in November and December.”

Still, investors are optimistic that the holiday season will not be heavily impacted by the situation, especially given the record import figures in 2021.

Breaking Down Retail Sales Data

Last month, sales at auto dealerships increased by 0.5% after falling 3.3% in August. The uptick in the indicator actually reflects higher prices rather than an increase in sales. The average price of a new vehicle exceeded $45,000 for the first time ever.

Online retail sales added 0.6%. Sales at clothing stores surged 1.1%. Prices at building material stores slightly increased by 0.1% and furniture outlets rose 0.2%.

Sales at service stations jumped 1.8% due to gasoline prices. Prices also increased at sporting goods, musical instruments, and book stores.

Given the decline in the number of COVID cases, restaurants and bars have become more active, pushing sales higher by 0.3%.

Elsewhere, electronics and appliance stores saw a decline in sales by 0.9%.

Consumer spending accounts for about 66% of the US economic activity, and economists expect a sideways trend for the third quarter, following a 12.0% annualized growth in the April-June quarter.

Shannon Seery of Wells Fargo said:

Inflation will take a major bite out of third-quarter real consumer spending growth. The main challenge for the fourth quarter will be finding everything on the shopping list as the supply chain crisis worsens.”

Impact on USD

The upbeat retail sales data has helped the US dollar withstand the looming bearish mood for a while, but it’s likely that this won’t be for long.

The USD Index, which tracks the greenback against a basket of six other currencies, broke below the support level of an uptrend on October 13, and the positive retail sales and jobs market data supported the dollar for a while, but it might not be enough.

In fact, positive retail sales data would help the greenback in nine out of ten cases, but this time it actually didn’t work.

The global risk appetite bounced back, which reduced demand for the safe-havens like the USD and CHF.

Stocks have rallied amid expectations of better-than-expected corporate earnings in the US, and the surprising uptick in retail sales also contributed to risk appetite rather than helping the USD.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, stated:

The risk appetite here remains really, really strong for the time being. That’s helping the high beta currencies like the pound, the euro and the Aussie, simply because the market is feeling much more positive.”




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