BofA Merrill Lynch Global Research – A US Economics Report – Monday, 15 October 2012
Solid retail sales report
Today’s retail sales report was much better than expected. Overall retail sales increased by 1.1% mom in September – 0.2pp better than market expectations. The prior month’s data was also revised higher to show a 1.2% mom increase instead of the originally reported 0.9% gain. What really matters in our view in this report is the “core” measure which excludes gasoline, autos and building materials sales and feeds directly into our GDP tracking model. Core retail sales increased a solid 0.9% mom – much stronger than our forecast of a 0.3% mom increase. The prior two month’s data was revised higher as well contributing to a 0.2pp increase in our 3Q tracking estimate to 1.6% qoq saar.
Gasoline: Over the course of the month, nationwide gasoline prices averaged $3.83 per gallon. That is roughly 4 cents higher than August, contributing to the 2.5% mom increase in gasoline station receipts as consumers were forced to pay more at the pump. Netting out gasoline station sales, spending was up 1.0%.
Autos and building materials: Auto sales increased by 1.3% mom while building material sales rose 1.1% over the course of the month. The large gain in autos reflects pent up demand and ease access to car loans which have helped drive auto sales. Building materials are benefiting from greater renovation spending as well as an increase in home building.
Core control: Core retail sales, which exclude gasoline, autos, and building material sales, rose a robust 0.9% mom in September. Both August (+0.1% from -0.1%) and July’s (+0.9% from 0.8%) data was revised higher as well. On a 3-month average annualized basis, core retail sales are up 4.4%, reflecting a notable pickup since the summer. The underlying details were strong with general merchandise sales picking up 0.3% mom, clothing sales 0.6% higher, and furniture sales rising 0.4%. While recent data has been better, putting upside risks to our forecast, we are reluctant to give an all clear sign. Unless the fiscal cliff is avoided, consumers face a large tax increase at the end of the year. As we approach the cliff we are concerned that consumer spending will slow as consumers react to the uncertainty shock, delaying big ticket purchases because of the uncertain tax and economic outlook at the start of the New Year.
iPhone boost: The biggest risk going into today’s retail sales report, in our view, was how big of an impact the latest release of the iPhone would have on overall sales. As a reminder, the iPhone 5 went on sale mid-month and in our view, the iPhone effect would show up in both the electronics and non-store retailer categories. Both saw a big pop in sales over the course of the month. Electronic sales increased by 4.5% mom reversing the 1.1% mom decline in the prior month. That is the biggest jump in electronics sales since October 2011. Non-store retailers, ie internet stores, rose 1.8% mom in September.
GDP implications: We are now tracking 1.6% for third quarter real GDP growth, up from 1.4% pre-report.
Read the full report here.