At 8:30 A.M. (EST) this morning, we received two reports on the consumer sector that were expected to be closely scrutinized for how American consumers are feeling ahead of the all-important holiday shopping season. The data were a pleasant surprise for both the consumers and retailers, who are vital to the economic output, accounting for roughly two-thirds of the nation’s Gross Domestic Product.
The more-anticipated report came from the Department of Commerce. Specifically, the government reported that advance estimates of U.S. retail and food sales for October, adjusted for seasonal variation, increased by 0.4%, to $428.1 billion, from the prior month. That reading surpassed consensus expectations, which were calling for growth in the neighborhood of 0.1%. Even more encouraging is that the better-than-expected showing came despite the negative fallout from a temporary government shutdown last month. Broken down into component parts, there was not much not to like in the latest release. In October, retail trade sales were up 0.3% sequentially (3.9% year over year), while auto and other motor vehicle dealer sales and nonstore retailer sales advanced 11.9% and 8.2% year over year, respectively. All in all, the report showed that the consumers are taking out their wallets to spend on items, particularly those of the big-ticket variety, which is a good sign with the holiday shopping season rapidly approaching.
Likewise, we received another noteworthy report on the consumer this morning from the Department of Labor. An hour before the start of trading, the Labor Department reported that consumer prices for the month of October decreased 0.1% on a seasonally adjusted basis. The core reading—all items less the volatile energy and food components—rose 0.1%.The Consumer Price Index over the last 12 months ended in October increased 1.0% before seasonal adjustment, which marked the smallest 12-month increase since October, 2009. Although the data will probably raise some questions about deflation rearing its head in the months ahead, the continued tame inflationary environment has to be welcomed news for consumers, who are expected to be out in force over the next month. The benign inflation makes items, particularly the big-ticket ones, more affordable and may bring more buying from those individuals who may have been on the fence with regard to such purchases. Breaking down the latest consumer pricing data, the biggest reason for the pullback in prices was a 2.9% decline in the gasoline index. That more than offset a slight (0.1%) increase in the food index. The drop in energy prices is a good sign for both the consumer and the retailer, as the likely savings from a reduction in heating costs, may be used to purchase more discretionary items during the holiday season.
In summary, the better-than-expected monthly retail sales and consumer price data are encouraging signs with the holiday shopping season set to kick off next week with Black Friday. Given the importance of the consumer to the nation’s economic output, a continuation in these trends over the next month could have a positive impact on GDP growth in the final quarter of 2013.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.