If you ignore the 2.2% decline in auto sales last month, today’s update on September retail sales looks ok. But cherry-picking the numbers offers a thin if not misleading veil of comfort at the moment. Indeed, the year-over-year change in retail spending dipped last month to a rate that’s close to the slowest pace in three years. Is this a sign of trouble? No one really knows at this point. It’s possible that all the talk last month of a government shutdown and the possibility of a Treasury default skewed the data. Some optimists also reason that the relative shortage of shopping days last month is a factor. Deciding what’s really going on will take a few more monthly updates to sort it all out. Meanwhile, there’s enough weakness in today’s data if you include auto numbers to keep the crowd wondering what happens next.
Looking at the headline numbers on a monthly basis certainly provides no comfort. Indeed, the September profile appears to be the latest in a string of deteriorating monthly updates that’s left us in a shallow hole, as the chart below shows.
Far more troubling is the sight of the year-over-year change slipping dangerously close to the lowest gain since 2010. September’s annual growth in retail spending is effectively tied at 3.2% with March’s increase and both months share the dark distinction of dipping to the lowest point since August 2010. The margin of comfort, in sum, is wearing thin. Granted, a 3.2% rise isn’t horrible. But given the change in the direction of late, it’s reasonable to wonder if that moderate pace is headed for lower still.
The best you can say is that today’s release is a mixed bag, although that’s pushing it if we look at the weakening annual trend. Maybe the September retail sales data isn’t the warning shot that it appears to be, but if that’s true we’ll see the annual pace hold steady in the months ahead. Deciding if that’s a valid assumption starts by looking at tomorrow’s ADP Employment Report for October. Unfortunately, the consensus forecast tells us to manage expectations down on this front. Economists think that private-sector employment growth will slide again to a weak 125,000 increase this month vs. September, according to Briefing.com.