September sales rose 0.8%, well above the 0.3% expected, but excluding autos and gas stations they rose 0.2%. With consumer prices up 0.6% in the month, spending outside fuel looks flat or lower once inflation is taken out.
The headline said the American consumer is holding up. The components said gasoline is doing much of the work.
Retail and food-services sales rose 0.8% in September to $745.0 billion, the Commerce Department said Thursday, against economists' forecast of 0.3%. August was revised up to a 1.3% gain from 1.1%. Sales were 6.3% higher than a year earlier.
Inside the number
Take out the biggest swing factors and the gain shrinks. Sales excluding gasoline stations rose 0.2%. Sales excluding both motor vehicles and gasoline also rose 0.2%. The control group, the subset that feeds into estimates of consumer spending in gross domestic product, rose about 0.1% by private calculations from the government data, below the roughly 0.3% expected and down from 1.2% in August.
The difference between 0.8% and 0.2% is largely the price of fuel. Gasoline rose 20.3% at the wholesale level in September, and pump prices followed. Sales at gas stations rise when the price per gallon does, whether or not drivers buy more of it.
Adjusted for prices
Retail sales are not adjusted for inflation. Consumer prices rose 0.6% in September. Set against that, a 0.2% nominal gain outside autos and fuel implies that the volume of goods consumers bought in those categories was flat to lower. That is an estimate, not a published figure, but the direction is hard to avoid.
It fits what the Fed heard from businesses. In its Beige Book survey released Wednesday, the central bank described consumer spending as flat in most districts and increasingly reliant on higher-income households.
The labor market
Jobs are not the problem. Initial jobless claims were 199,000 last week, the fifth straight week below 200,000, and continuing claims edged down to 1.71 million. A consumer with a job and less real purchasing power tends to keep spending in nominal terms and buy less in real terms, which is what September's mix looks like.
Market implications
One reading is that demand remains resilient. Headline sales beat by a wide margin, August was revised up, sales are growing more than 6% a year, and layoffs remain rare. That supports the case that the economy can absorb more Fed tightening.
A second reading is that fuel costs are crowding out other purchases. The control group barely rose, spending outside autos and gasoline appears to have fallen after inflation, and businesses report that lower-income shoppers are pulling back. For discretionary retailers, that points to pressure on volumes heading into the holiday season even as nominal sales look healthy.
For bond investors, the second reading helps explain why yields fell on a day of strong-looking data.
What to watch
Retailers' third-quarter reports in November will show how much of their sales growth came from price rather than units. Personal income and spending data for September, due Oct. 29 with the first estimate of third-quarter GDP, will give the official inflation-adjusted figure.