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Just when it looked like the trend in retail sales was set to flash a danger sign for the business cycle, consumers rallied with a sharply higher rate of spending. Headline retail sales increased 0.4% in October, reversing September’s flat performance and rising the most since June. The gain surprised most analysts, based on the consensus forecast, although the pop was only a touch stronger than The Capital Spectator’s average econometric forecast. More importantly, the year-over-year change in retail spending finally turned up after three straight months of decline. That’s a clue for thinking that the recent weakness in consumer spending isn’t a sign of deeper troubles for the business cycle.

Looking at the main retail categories, spending was higher in all but a handful of corners. The main exceptions: a retreat for sales at building material/garden equipment merchants and gasoline stations. In fact, if we strip out gasoline sales, retail spending looks even stronger for October, posting a 0.5% rise. In other words, there seems to be an urge to bump up discretionary purchases. So much for the theory that last month's government shutdown would take a toll on Joe Sixpack's penchant for consumption.


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The upturn in the annual rate of retail sales is particularly noteworthy. In the previous update, the year-over-year comparison was bumping along at roughly the lowest pace we’ve seen in several years. Another decline on this front would have looked rather ominous. But for the moment, spending has rebounded, which suggests that the outlook for moderate economic growth overall is still a viable forecast.


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Source: Retail Sales Revived In October