Retail Sales and Consumer Sentiment Increase
- Retail sales and food services rose 1.9 percent in September, according to the Census Bureau, with the aggregate level of sales sitting 3.7 percent above the level seen in January. Motor vehicle sales rose solidly, helping push up the headline number. Excluding motor vehicles, sales rose 1.5 percent. Food services and drinking place sales rose for the fifth straight month, but still have not fully recovered from the precipitous spring declines. Core retail sales, which exclude auto, building material, food services, and gas station sales, rose 1.4 percent, the fastest pace of growth since June. This increase was driven by sales in general merchandise, clothing, and sporting goods/hobby stores.
- The University of Michigan Consumer Sentiment Index rose 0.8 points in the preliminary October reading to 81.2. The current economic conditions index fell 2.9 points to 84.9, while the consumer expectations index rose 3.2 points to 78.8. According to the press release, “Slowing employment growth, the resurgence in covid-19 infections, and the absence of additional federal relief payments prompted consumers to become more concerned about the current economic conditions.”
- The National Federation of Independent Business (NFIB) Small Business Optimism Index rose 3.8 points in September to 104.0, the highest level since February. The share of firms planning on increasing employment rose 2 percentage points to 23 percent, the highest level since December 2018, while the share of firms expecting real sales to be higher rose 5 percentage points to 8.0 percent. The share of firms planning capital expenditures within three to six months rose to 28 percent, tying the highest level since January.
- Industrial production, a gauge of output in the manufacturing, utility, and mining sectors, fell 0.6 percent in September, according to the Federal Reserve Board, and remained 7.1 percent below the pre-pandemic level seen in February. Utilities and manufacturing output fell, while mining output increased. Capacity utilization fell five-tenths to 71.5 percent.
- Both the headline Consumer Price Index (CPI) and core CPI rose 0.2 percent in September. From a year ago, headline CPI rose 1.4 percent, an acceleration of one-tenth from last month, while core CPI rose 1.7 percent, unchanged from last month.
The strength in retail sales in September supports our view that there was a significant rebound in total consumer spending in the third quarter that will likely carry into the fourth quarter as many consumers continue to have a substantial amount of spending ability. The increase in consumer sentiment in early October also supports the potential for stronger total consumer spending in the fourth quarter, though we believe rising COVID-19 cases combined with the flu season could weigh on sales in the coming months. For business investment, despite the decline in industrial production, the increase in small business optimism in September suggests some upside for business investment in the coming months as more firms plan on increasing employment and making capital expenditures.
Economic and Strategic Research Group
October 16, 2020
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