Consumer Spending Remains Strong Despite Plunging Confidence and Higher Energy Prices

Consumers continued to spend at a healthy pace in chain stores in September despite an array of negative factors including record energy prices and hot weather that weighed on fall merchandise demand. Sales were supported by continued job and income growth, borrowing that supplemented cash flow, and easy comparisons to weak sales last year.

Sales were inflated by record gasoline prices. Some chain stores do sell gasoline and those retailers benefited from the increase in prices. Wal-Mart got 0.6 percentage points of its 3.8% growth from higher gasoline prices. Costco got three percentage points of its 11% growth from gasoline prices. The ICSC estimates that this added nearly 0.5 percentage points to same store sales growth in September. They also estimate it added three percentage points to growth at wholesale clubs.

Overall, the sales growth was stronger than expected, with a significant majority of retailers posting sales growth that exceeded expectations. Combined with the surprisingly small decline in auto sales in September, this provides evidence that consumers are not cutting back on their spending beyond what they are forced to do by energy price-induced declines in real income.

Fears that the sharp drop in consumer confidence would be accompanied by a retrenchment in spending clearly seem unfounded. Consumers continued to spend at a healthy pace in chain stores in September despite an array of negative factors including record energy prices and hot weather that weighed on fall merchandise demand. Sales were supported continued job and income growth, borrowing that supplemented cash flow, and easy comparisons to weak sales last year.

The outlook for overall retail sales for the month, to be reported October 14, is for healthy growth. Gasoline station sales likely grew very strongly again as average gasoline prices for the month were up about 40 cents, nearly double the 23 cent in August. Vehicle sales fell modestly and will be a drag on total sales, although a far more modest one than in August. The acceleration in growth in total store sales suggests at least modest growth in core sales. Of course the outlook could be altered by results at building supply stores, grocery stores, restaurants, and some other specialty stores for whom no sales data are yet available. But, building supply and grocery store sales were likely lifted by hurricane-related rebuilding and restocking.


Source: Consumer Flow (http://www.consumerflow.com), Economy.com

Economy.com’s Consumer Flow (http://www.consumerflow.com) provides analysis of key trends in consumer balance sheets, income, spending, and demographics.