Retail sales took a modest dive last month, but the prevailing explanation places the blame on Hurricane Sandy. That’s a plausible excuse for October's consumption retreat, although it'll take time to confirm, which means that it's not immediately obvious that we can dismiss today's news as a one-off event.
For now, the only thing we know for sure is that retail sales slumped 0.3% in October, the first monthly drop in four months. Quite a bit of the fall is due to weak auto sales, which sank 1.5%. Retail sales ex-autos were flat last month. “There’s probably some hurricane impact, but when consumers are cautious they tend to spend more on staples than discretionary items, and that’s exactly what happened this month,” Neil Dutta, head of U.S. economics at Renaissance Macro Research, tells Bloomberg. “The broad story is that consumers remain cautious.”
The October fade put a dent in the year-over-year trend too. The annual pace of retail sales remains in the black, rising 3.8% for the 12 months through October. But that's the slowest rate of increase since June. Of course, the holiday shopping season is upon us and so the notion of a revival in spending seems like a reasonable view.
In other words, there's some wiggle room to consider and so we shouldn't be in a rush to take today's numbers at face value. But even if retail sales were to boom, it's short-sighted to ignore the fiscal cliff worries or the other hazards that continue to lurk.
Nonetheless, October data so far on balance doesn't look awful, and some of it looks rather encouraging, including last month's pop in private-sector payrolls, which rose the most since February. The strength in the ISM Manufacturing Index and consumer sentiment of late are positives as well.
Cautious optimism for the U.S. economy isn't dead yet, but the next few weeks of data releases will be critical for deciding if today's retail sales report is a harbinger of things to come. Some analysts are already preparing for trouble.
Steven Ricchiuto, chief economist at Mizuho Securities, advises that "the weakness in the sales report was not enough to confirm that it was not simply a weather-related dip, but the components suggest that there was more going on than just Sandy."
That sounds a bit too dark at this point, given the positives across a broad set of economic and financial indicators. On that note, I'll soon have an update of The Capital Spectator Economic Trend Index, which looked fairly strong a few weeks back. After this week's economic dates are published, including Friday's read on industrial production for October, I'll update CS-ETI for a formal review of where we stand vis-a-vis the business cycle.
Next up is tomorrow's weekly jobless claims report, although new filings for jobless benefits are also expected to suffer from the delayed reaction to Hurricane Sandy. In terms of the data, it may still get worse before it gets better.