US: Retail sales surged in October but further moderation expected - Wells Fargo

Today’s data showed that retail sales rose 0.8% in October. According to analysts from Wells Fargo, stripping out volatile components such as gasoline and motor vehicle sales, control group sales signal a solid but more modest pace of consumer spending during the fourth quarter. 

Key Quotes: 

“Retail sales bounced back in October, growing 0.8%, after downward revisions showed modest declines in the prior two months. This was the largest monthly increase since May, and, while sales were largely driven by the volatile gasoline and motor vehicle retailer components, control group sales suggest a slight moderation in the fourth quarter.”

“Sales were boosted by a 3.5% jump at gasoline stations. We expect this was largely a price story, as yesterday we learned that higher energy costs were a driving factor in October’s pickup in CPI inflation.”

“Sales at motor vehicle and parts dealers were another big factor in the retail sales report, up 1.1% over the month. This was not wholly surprising, given that going into this morning’s release we already knew that auto sales from manufactures to dealers notched another solid gain in October, rising to a 17.5 million unit annualized pace.”

“Stronger job and income growth continue to bolster consumer confidence and provide ample support for spending. In a broad sense, we expect a healthy pace of consumption in the final months of the year and a strong holiday season among retailers. In a recent report we said that we expect holiday sales, sales which take place in November and December, to rise 4.5% compared to last year. This morning’s release confirms our expectations of a strong holiday season. But, as the calendar flips to 2019, we expect a further moderation in spending, as the boost from tax cuts will start to fade for consumers and amid rising prices and tighter monetary policy.”