US: October retail sales point to resilience in consumer spending - Nomura

Analysts at Nomura note that US core (“control”) retail sales rose 0.3% m-o-m in October, mostly in line with expectations (Nomura: 0.4%, Consensus: 0.3%), following an upwardly revised 0.5% increase (previously reported as 0.4%) in September.

Key Quotes

“Aggregate retail sales were up 0.2%, in line with our expectations but above market consensus (Nomura: 0.2%, Consensus: 0.0%), lowered by weaker sales at gasoline stations and building material stores, which tend to be volatile.”

“The healthy increases in core retail sales suggest solid momentum for PCE going into Q4 following steady growth in Q3. Despite the hurricanes, consumer spending has been resilient. Given the healthy pace of job creation and steady income gains, we expect this momentum to continue. Further, an upcoming holiday shopping season, which could be stronger than usual, given elevated consumer sentiment, will likely be favorable for sales.” 

“The growth in sales was broad-based across most retail businesses in October. Sales picked up at clothing, sporting goods, furniture and electronic appliance stores. On the other hand, sales at general merchandise stores, including department stores and warehouse clubs, were mostly unchanged from September sales.”

“Sales at motor vehicle and parts dealers grew healthily by 0.7% m-o-m, following a sharp 4.6% jump in September, supported by the residual replacement demand following the hurricanes. Auto sales contributed decently to GDP growth in Q3, while auto production remained as a drag. We expect auto sales to moderate further as the transitory boost from replacement demand cools.” 

“Some of the increase in core retail sales was offset by lower sales at gasoline stations, which declined 1.2% m-o-m. This likely reflects a reversion in domestic retail gasoline prices in October following a weather-driven increase in September. Sales at building materials and gardening supply dealers, another volatile component, fell 1.2% following a 3.0% jump in September.”

“GDP tracking update: Core retail sales in October were slightly weaker than our forecast but September core sales were revised up. Further, inflation data used to deflate nominal spending were mostly in line with our expectations. On balance, this suggests more PCE growth in both Q3 and Q4. As a result, we raised our Q3 real GDP tracking estimate by 0.1pp to 3.5% q-o-q saar, but we left our Q4 tracking unchanged at 2.3% after rounding.”