September Retail Sales Growth Misses Estimates

Potential Winners & Losers Of Dem Debate

The Democratic debate on Tuesday was 3 hours long and included 12 candidates. It was probably a bit too many candidates to have on one stage. Given the slightly higher standards to make the next debate, I’m expecting there to be 2-4 fewer on November 20th

So far, 8 have qualified. Bloomberg screen below gives you a complete overview of the picture right after the debate. As you can see, the debate caused the odds of Warren winning the primary to fall 5%. Pete Buttigieg and Bernie Sanders saw their odds increase by 3% and 4%.

Mayor Pete may emerge in the polls and money raised if Biden looks vulnerable versus Warren. Pete is a moderate who is calling for Medicare for all who want it. This plan won’t kick people off private health insurance plans who like their plan. Therefore, we could see healthcare stocks rise when Pete and Biden do well in the polls and see them fall when Warren and Sanders do well.

As you can see, the Democratic primary is very important because the odds of the Dems winning the presidency is at 56%. Those odds will fluctuate sharply after the party picks a nominee in the summer of next year. It could be clear who will win the race as early as the spring. That’s why I’m following the race now. Currently, there is no clear front runner which could lead to stock market volatility.

Disappointing Retail Sales

On the positive side, the strong August retail sales report was revised higher. On the negative side, September sales growth missed estimates. In August, monthly growth was revised from 0.4% to 0.6%. Retail sales growth excluding autos improved from 0% to 0.2%. Excluding autos and gas, growth improved from 0.1% to 0.4%.

On the other hand, in September headline monthly sales growth was -0.3% instead of 0.3%. The report faced tough comps, but still this was disappointing. Sales growth less autos was -0.1% instead of 0.2%. This shows you autos played a part in the weakness which is the reverse of August’s report. Excluding autos and gas, sales growth was 0% which missed estimates for 0.3%. Finally, the control group had no growth instead of 0.3% growth.

It wasn’t a disastrous report like many are suggesting. But it showed some weakness in the month the new tariffs were added. With consumer confidence improving in October, it’s possible this decline in growth was a one off situation. On the other hand, Redbook same store sales growth was weak in the latest weekly report.

Details Of The Sequential Weakness

The table below breaks down each category. Most categories showed weakness in August, but I couldn’t call it a weak report. Areas of strength were extremely strong. In August, 56% of the 13 categories were in contraction. Real total yearly retail sales growth was 2.56% which was the strongest growth since August 2018. 

Similarly, nominal yearly growth was 4.36% which was the highest growth since October 2018. It was a great report. Growth has been solid since it ended last year weakly and got off to a rough start this year. September showed weakness in the key categories that showed strength in the previous month, bringing down the headline reading.

In September, only 38% of the categories had positive monthly growth which is the lowest percentage since the terrible December 2018 report. Two most notable weak points were motor vehicle and parts and non-store sales which saw their monthly growth rates fall from 1.9% and 1.2% to -0.9% and -0.3%. 

Headline monthly growth was down 25 basis points; the motor vehicle and parts category hurt growth by 19 basis points and the online category hurt growth by 4 basis points. Last month, these two were responsible for more than the entire gain. This time it’s -23 out of -25 basis points. Their yearly growth rates fell from 7% and 15.33% to 5.56% and 12.88%.

This decline in non-store sales growth was a long time coming because yearly growth was the strongest of the cycle for 3 straight months. Before revisions, yearly growth was the highest since December 2000 for 2 straight months. September comp was very tough as growth improved from 9.3% to 10.8% last year. October will be tough too as growth was 11.4%. December will have very easy comps for the entire report. Yearly growth should be very strong. If it’s merely very good, it will be problematic.

To be clear, this wasn’t a terrible report. Besides August, real yearly growth was the best since August 2018. It was the 2nd best report of 2019. It was the 2nd best report for nominal growth too. Nominal growth was the best since October 2018 outside of last month’s reading.

Because estimates were high, this report put a wrench in GDP growth estimates which were already low. The GDP report needs consumption growth to be very strong for growth to be above 2%. If consumption growth is simply good and shows sequential weakness, GDP growth could be in the mid 1% range. 

Merrill Lynch lowered its Q3 tracking estimate one tenth to 1.5% because of this report. Each tenth is important when growth is below 2%. Anything below 1% would cause many traders to freak out about a possible recession. Chief economist of RSM LLP US has GDP growth coming in at 1.4% if consumption growth is 2.5%.


The Democratic debate could have impacted the race more than the odds indicate. We’ll need to see polls to determine its impact. I think Mayor Pete will gain momentum and Vice President Biden will lose some support. We’re already seeing that occur with campaign donations. 

Retail sales report was far from bad. Non-store sales growth was strong, but came down to Earth. Problem is the consumer is one of the only parts of the economy preventing a recession. With consumption growth at 2.5%, GDP growth might only be 1.4%. 

If growth is below 2%, recession fears will increase. If growth is below 1%, fears will hit a fever pitch potentially catalyzing a 10% decline in the S&P 500. I see growth coming in between 1.6% and 2.1%. 

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