September Retail Sales Research Notes

by Jim Baird on October 14, 2011

Retailers end Q3 on a high note as consumers weather the storm

September retail sales exceeded expectations, increasing 1.1% from the prior month.  Coupled with the upward revision to August (0.3% vs. the 0.0% previously reported), today’s report was a pleasant surprise.

As one of the bellwether indicators for the consumer sector, the solid pickup in retail sales suggests that consumers are still weathering the storm reasonably well, despite the challenge being presented by the lack of robust personal income growth.

Outstanding consumer credit declined in August, after expanding for ten consecutive months.  The renewed emphasis on household savings and debt reduction in response to the last recession and tighter lending standards represented a significant mindset change from the pre-2008 “spend and borrow and spend some more” mantra.  A single month decline is not enough to sound the alarm bell, but an extended reversal in credit expansion could become a negative for the retail sector in the coming months.  

The historically resilient consumer sector is still feeling the effects of the unwaveringly weak jobs market, falling home prices, high indebtedness, and uncertainty about the outlook for the U.S. economy.  The low level of confidence has nurtured a frugal state of mind.  We believe this will keep consumption growth tempered until we see fundamental improvement in those areas. 

Rhetoric that has recently turned more positive with regards to the European credit crisis has provided a brief respite for investors, although the implementation of a decisive plan does not appear imminent. On the recession front, however, the mixed bag of data continues to muddy the economic waters.  Will the already slow growth environment slip into negative territory?  That is a question that will seemingly be resolved over the next few quarters.

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