Summary: US retail sales flat in September, less than expected; annual growth rate slows from 9.4% to 8.2%; spending “remains firm”; short-term Treasury bond yields up, longer term yields down; rate rise expectations firm; falls in seven of thirteen retail categories; gas station segment largest single influence on month’s result.
US retail sales had been trending up since late 2015 but, commencing in late 2018, a series of weak or negative monthly results led to a drop-off in the annual growth rate below 2.0%. Growth rates then increased in trend terms through 2019 and into early 2020 until pandemic restrictions sent it into negative territory. A “v-shaped” recovery then took place which was followed by some short-term spikes as federal stimulus payments hit US households in the first and second quarters of 2021.
According to the latest “advance” numbers released by the US Census Bureau, total retail sales remained flat in percentage terms in September. The result was less than the 0.2% increase which had been generally expected and below August’s +0.4% after it was revised up from 0.3%. On an annual basis, the growth rate slowed from August’s revised figure of 9.4% to 8.2%.
“Retail spending remains firm, supported of late by lower gas prices and households dipping into their large saving balances,” said NAB currency strategist Rodrigo Catril.
Short-term US Treasury bond yields moved considerably higher on the day while longer-term yields moved lower. By the close of business, the 2-year Treasury yield had gained 10bps to 4.42% while 10-year and 30-year yields each finished 3bps lower at 3.90% and 3.88% respectively.
In terms of US Fed policy, expectations of a steeper path for the federal funds rate over the next 12 months firmed. At the close of business, November contracts implied an effective federal funds rate of 3.805%, 73bps higher than the current spot rate. December contracts implied 4.22% while September 2023 futures contracts implied an effective federal funds rate of 4.86%, nearly 180bps above the spot rate.
Seven of the thirteen categories recorded lower sales over the month. The “Gasoline stations” segment provided the largest single influence on the overall result, falling by 1.4% over the month. “Non-store” sales had the largest single positive influence on the month’s result after sales in the segment increased by 0.5%.
The non-store segment includes vending machine sales, door-to-door sales and mail-order sales but nowadays this segment has become dominated by online sales. It now accounts for 16% of all US retail sales and it is the second-largest segment after vehicles and parts.