Retail Spending Surges in September

Retail sales and food-services spending posted a strong gain in September, rising 1.9 percent from the prior month, well above the 0.7 percent consensus expectation. The September gain was the fifth in a row following two devastating declines in March and April and puts the monthly total well above the longer-term trend and at a new record high (see first chart). Core retail sales, which exclude motor vehicles and gasoline retailers, posted a 1.5 percent gain for the month putting them well above trend and at a record high as well (see first chart).

From a year ago, total retail sales are up 5.4 percent while core retail sales show a 5.9 percent rise. Both are back to the growth rates achieved just before the outbreak of Covid-19 and implementation of government lockdown policies (see top of second chart).

Unit-vehicle sales, reported earlier in the month, have also staged a very solid recovery, with sales of light vehicles totaling 16.3 million at an annual rate in September. For the month, light-truck sales totaled 12.6 million at an annual rate, up 8.2 percent from the 11.6 million-rate in August but well ahead of the 6.7 million-rate in April. Car sales also had a solid gain, rising 5.7 percent to a 3.7 annual rate versus 3.5 in August and 2.0 in April (see bottom of second chart).

Results across the various categories of retailers were mostly positive in September. Just one category, electronics and appliance stores, reported a decline in September sales, falling 1.6 percent for the month. Gainers were led by an 11.0 percent surge for clothing and accessories stores followed by a 5.7 percent gain for sporting goods, hobby, musical instrument, and book stores, and a 3.6 percent increase for motor vehicles and parts retailers (see third chart).

The run of strong monthly gains recently leaves five of the 13 categories with sales below their pre-lockdown levels. Gasoline stations are 16 percent below January followed by restaurants (15 percent below), clothing and accessory stores (13 percent below), electronics and appliances (6 percent below), and miscellaneous store retailers (1 percent below).

On the upside, nonstore retail sales (up 0.5 percent in September and 23.8 percent from September 2019) are 23 percent above January 2020 levels (see fourth chart). Sporting-goods, hobby, musical-instrument, and bookstores saw a 5.7 percent gain in September, and are up 14.4 percent from a year ago and are 15 percent above January 2020.

Retail sales rose to another record high in September as widespread quarantines and lockdowns continue to be eased. Businesses and consumers are coming out of the policy-induced economic coma and while aggregate retail spending is at a new high, results still vary greatly by industry. A full return to pre-pandemic conditions for the overall economy and the labor market is likely many months, and possibly many quarters, away but at least the process is underway. However, uncertainty about the progression of the virus and government policies is sustaining heightened uncertainty and remains a significant threat to the recovery. The approaching elections also have the potential to be destabilizing.