Figures released by the Department of Commerce last week show that the US retail market is continuing on its recovery path. US retail sales rose 1.9%, or $ 549.26 billion, in September, beating economists' expectations of a 0.7% increase for the month. Retail sales increased 5.9% year over year.
The question is, can this dynamic continue?
Healthy wage growth, back-to-school spending and disaster relief unemployment have fueled recent market gains. "Today's data shows that consumers are still driving the recovery – but there are growing doubts that the pace of activity can be sustained as income growth slows and savings are made," said James Watson, senior US economist at Oxford Economics a report by S&P Market Intelligence.
However, given the growing discord over a government stimulus package and the upcoming November election, it is possible that consumer spending will decline in the fourth quarter. In addition, the latest unemployment report shows an increase in unemployment claims from 845,000 to 898,000. "If initial jobless claims continue to rise and layoffs focus on higher wage earners while companies pursue cost-cutting strategies, consumer confidence and spending could weaken," said Quincy Krosby, chief marketing strategist at Prudential Financial, in an S&P Market Intelligence interview .
The coming weeks will be a real test of the market. Looking at indicators like mortgage applications and credit and debit card spending, Watson added that the market may be struggling to find direction.
However, a report by Marcus & Millichap suggests that Christmas sales could be a bright spot for the market. In addition, the money normally spent on travel and entertainment could be passed on to retailers.
It's also worth noting where consumers spent their retail dollars in September – in many cases, they are suggesting a real return to pre-pandemic shopping patterns.
Apparel and apparel accessories stores rose 11% in September, leading the market with monthly gains. Back-to-school sales have fueled activity in this segment of the market, as has adults adopting a normalized work schedule, some of it in the office. Department stores in particular benefited from the increase in spending. Sales rose 9.7% in September.
A handful of other retail segments also saw significant gains over the month, including sporting goods, hobby, musical instrument and booksellers, which saw sales jump 5.7%. Grocery stores with sales up 9.6%; and auto parts and dealerships, whose demand rose 3.6%.
The previous year's figures also showed the resilience of the sector. Although there were nominal monthly increases, building materials and hardware stores saw sales increase 19.1% over the previous year. Food and beverage retailers gained 10.5% and off-store retailers led the market with sales up 23.8% year over year.
