September retail sales fell below forecast portending a weak October

By Yinmeng Liu

Retails sales, dragged down by declining demand for cars and plunging gas prices, dipped in September after a strong August performance, the U.S. Census Bureau reported today. The decline is the latest sign that the economy may be losing momentum and suggests weak sales going into October, experts said.

Total retail sales slipped 0.3 percent after jumping 0.6 percent in August, falling slightly below the 0.1 percent decline forecasted by economists. Excluding the volatile vehicle and gasoline sectors, sales dropped 0.1 percent, compared with the 0.4 percent gain predicted, according to Bloomberg.

Ex-auto retail sales dropped 0.2 percent, after unit auto sales spiraled down to a disappointing 16.4 million annual rate in September from 17.5 million in August. In addition, plummeting oil prices also contributed to the decline in gasoline purchases.

Other categories experienced a weak September, with sales at non-store, or e-commerce, retailers dropping 1.1 percent. Clothing store sales also fell 1.2 percent. However, economists said investors should not be too concerned about the slump just yet.

“Some of the weakness in retail sales may be interpreted as a signal of soft overall consumer spending, but not all of it,” wrote Robert Dye, an economist at Comerica, in a research note.

Decreases in some categories were partially offset by moderate gains in electronic stores and food and drink services. “The bright spot in the report was electronics store sales, which gained 3.4 percent, perhaps aided by the new iPhone,” Dye added.

The drop in gasoline freed up consumer spending for food and drink services, some economists said, which rose 0.6 percent in September, a sign that consumers are still willing to spend on discretionary items.

There were also moderate gains in the health and personal care and general merchandise stores sectors.

Retail sales account for nearly one-half of consumer spending, which is responsible for one-third of total economic activity.

In his most recent report, Daniel Silver, an economist at J.P. Morgan, downgraded the estimate for consumption for the fourth quarter, raising concerns about retail sales for the months ahead.

“We now think real consumption in [the third quarter] is tracking about 1.7 percent (previously 2.0 percent), and we believe real consumption edged down very slightly in September, which sets up a challenging trajectory for the data headed into the fourth quarter,” wrote Silver in an analysis.

The disappointing September sales report added to a tumultuous day on Wall Street, with the major stock indices experiencing a sharp drop.

“All in all, bad timing for a soft report,” Dye wrote, “but the sky is not falling.”