Fueled by Surge in Demand for iPhones, Retail Sales Increased Signaling Strength in Consumers

By Rom Badilla, CFA

October 15, 2012

Retails sales increased in September surpassing expectations which suggests that the consumer should continue to support economic growth. The U.S. Department of Commerce reported that Retail Sales rose 1.1% in September which is above the median forecast by economists of 0.8%. In addition, the August print was revised upward by three-tenths to 1.2%. The latest release puts the three-month average on an annualized basis at 5.5% which breaks the recent string of three consecutive negative months.

More importantly, core retails sales jumped in September beating expectations while previous months’ data was revised upward. When stripping out motor vehicle sales and gas in order to get a better read on the health of the consumer, Retail Sales ex Autos & Gas aka “Core” followed suit of the headline number which gained in September by 0.9% after increasing 0.3% and 0.9% in August and July, respectively.

Looking at the details of the report, gains were broad-based, led by a surge in demand for electronics. In September, sales in electronics jumped 4.5% after falling 1.1% in the previous month. While electronics typically has a small weighting to the headline number, the large gain in this category added to the gains in other sectors according to Citigroup Economist, Steven C. Wieting. In Citigroup’s latest U.S. Macro Flash, he wrote the following:

This was the strongest monthly gain since October 2011 and included the introduction of I-phone 5, a huge if discrete sales event for the electronics world. The large rise for the month added about 0.1 percentage point to overall sales and nearly 0.2 percentage point to core sales. However, the report was still stronger-than-expected excluding this impact, particularly with earlier revisions. Sales rose in 12 of 13 major categories in September.

The progress shown by consumers may have strong implications for the U.S. economy since consumer spending accounts for about two-thirds of GDP growth. Retail sales while volatile, make up about half of consumer spending so it is an excellent proxy for U.S. economic growth. However, given the slowdown in exports due to slowing global growth and in business investments due to the uncertainty surrounding the Fiscal Cliff, it remains to be seen if the consumer will ultimately be affected by these headwinds. With today’s data release, it appears that consumer spending remains resilient which should prop up the economy for the time being.

Original post can be found Here

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