September 2009 Retail Sales

Bottom Line

Overall retail sales dropped by 1.5% in September.

September sales were better-than-expected, but August sales were revised down from a preliminary gain of 2.7% to a revised increase of 2.2%.

Core sales rose by 0.5%, building on a gain of 0.7% in August.

Motor vehicles and parts cratered by 10.4% – the hangover from the “cash-for-clunkers” program was severe.

Other major sales channels were reasonably solid – furniture jumped by 1.4%, general merchandise moved up by 0.9%, and clothing was up by 0.5%.

Real consumer spending is on track to expand by a relatively solid 3% in the third quarter, a major improvement from a decline of 0.9% in the second quarter.

Outlook

Retail sales dropped by 1.5% in September as auto sales cratered downward by 10.4% in a severe post “cash-for-clunkers” hangover.

Despite the sharp pullback in auto sales, core retail sales excluding autos, building materials and gasoline advanced by a relatively solid 0.5%, building on a gain of 0.7% in August.

This will support a strong acceleration in real consumer spending from an outright decline of 0.9% in the second quarter of 2009 to a gain of nearly 3% in the third quarter.

The “cash-for-clunkers” program brought forward sales from the fourth quarter and early 2010 into the third quarter of 2009. In addition, a rising unemployment rate and stagnant wages and salaries for “rank and file” Americans will restrain consumer spending growth for several more quarters.

As a result, we expect consumer spending to decelerate sharply – to below 0.5% in the fourth quarter of 2009 – and then chug along just below an annualized rate of 2% in the first half of 2010.

The various fiscal stimulus measures, including the “cash for clunkers” program, are playing a pivotal role in jump-starting the economy in the third quarter of 2009, and that should create enough initial momentum to keep the recovery in motion, but we should not be looking for consumer spending to be a major driver of the recovery.