Market Overview

Retail Activity Disappoints For The Second Straight Month

Retail Activity Disappoints For The Second Straight Month
Related XRT
Don't Be Deceived By This Retail ETF's Declines
U.S. Sanctions Against Venezuela? ETFs To Top And Flop
A December To Not Remember: What Drove The Recent Plunge In U.S. Retail Sales? (Seeking Alpha)

Retail activity eked out a meager gain for the second consecutive month, as a sharp decline in spending at restaurants weighed down the headline numbers. Retail conditions remain generally solid, however, as the sector looks poised for healthy growth to round out the year.

 Year-over-year growth tumbled in September

Year-over-year growth tumbled in September

The Census Bureau reported this morning that total retail sales rose 0.1 percent in September on a seasonally-adjusted basis from August's levels, falling well short of consensus estimates of a 0.6 percent gain. Year-over-year growth in the retail sector tumbled to 4.7 percent, which marks the slowest pace of growth since February of this year.

Much of the softness in this morning's report was driven by a 1.8 percent decline in sales at restaurants and bars which was the largest decline in the industry in nearly two years. This drop could potentially have been driven by the flooding and forced evacuations caused by Hurricane Florence in mid-September, though the Commerce Department decline to provide an estimate of the storm's impact on the retail sector. Gasoline sales also experienced a 0.8 percent decline during the month, contributing to the disappointing headline number.


Outside of these industry segments, retail actually performed quite well during the month. Retail sales excluding motor vehicles, gas, and food services rose a healthy 0.5 percent in September. Nearly every other major industry segment within retail saw positive sales growth during the month, including large gains at both furniture stores and nonstore (mostly online) retailers.

This bodes well for retail performance going forward, and should help propel freight demand in upcoming months. Consumers in the economy continue to be supported by strong job and income growth, and inflation remains generally tame. Confidence is still at elevated levels headed towards the end of the year and US households appear to be in a good position to spend during the holiday months of November and December.

Behind the numbers

Overall, the results are more encouraging than the headline number would suggest. The year-over-year growth numbers saw an eye-catching decline, but like many other indicators, most of this was driven by the fact that the comparisons to last year are getting tougher. Upcoming comps are also going to be difficult, so a return to the 6 percent growth rates we were seeing in the middle of the year is not likely even if retail performance stays solid.

The broad gains in most industries continue to point to a strong holiday season, particularly on the e-commerce side of retail. Hurricane Florence may have played a role in depressing this month's gains as well, though there is little evidence of any major hurricane impact in the overall retail sector. The decline in restaurant sales could have been hurricane related, but could have simply been a bit of a breather after several big gains in recent months. Even with September's weakness, food service sales are over 7 percent higher than last year, and Hurricane Harvey last year did not cause a similar decline in the industry.

Regardless, fundamentals still look generally good for consumer spending. As long as consumer sentiment and income growth are there, retail demand should be solid. This, in turn, should help to keep demand for trucking and freight services strong to round out the year. A good portion of freight movement is dedicated to moving things in and out of inventory to stock retail locations, and parcel and LTL companies benefit from the surge in online shopping which is showing no signs of slowing.

What remains to be seen is whether or not these fundamentals will hold up. Job and income growth are likely to continue, but it will be interesting to see how consumers react after last week's massive tumble in the stock market. If consumers become concerns about heir wealth and finances, it could weigh on retail activity towards the end of what has thus far been a stellar year.

Ibrahiim Bayaan is FreightWaves' Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.

Want more content like this? Click here to Subscribe

Posted-In: FreightNews Retail Sales Econ #s Best of Benzinga


Related Articles (XRT)

View Comments and Join the Discussion!

J.B. Hunt's Earnings Beat Estimates Thanks To Better Brokerage, Truckload Businesses

Surverying The Q3 Earnings Heat Map