Personal Wealth Management / Market Analysis

September Snapshot: Retail Sales and Industrial Production

The US economy ended Q3 on a positive note.

Stocks may have moved on from Q3’s economic data already, but that doesn’t make the latest September readings unimportant. As it happens, there are some interesting nuggets in US retail sales and industrial production, both of which hit the wires Tuesday. They won’t tell you where the economy is going from here, but they show the gap between reality and expectations remains plenty wide—fuel for stocks.

Shoppers Aren’t Cutting Back

Headline retail sales decelerated a smidge, from a fast 0.8% m/m in August to a still-fast 0.7%.[i] But August’s figure was skewed by something rather unpleasant: higher gas prices. The Commerce Department doesn’t adjust monthly retail sales for inflation, so pricier gas flatters the headline total—even if it forces people to cut back a bit elsewhere. Excluding gas stations, retail sales rose a much milder 0.3% m/m in August.[ii]

But gas was apparently less of a factor on September’s headline reading. Prices stayed elevated throughout the month, hitting their year-to-date high in the week of September 18 (mercifully, they are down about 30 cents per gallon since then).[iii] And gas station sales rose 0.9% m/m, which is fast, but not close to August’s 6.7% rise, giving shoppers more leeway to spend their rising wages on other, more pleasant things like dining out.[iv] As a result, sales ex. gas stations sped to 0.6% m/m. Zeroing in on the categories that feed into GDP—retail sales ex. food service, gas stations, car dealers and building materials stores—“control group” sales accelerated from August’s 0.2% m/m to 0.6%.[v] Core demand looks to be in good shape. Of course, these data being nominal complicates the view. But slowing core inflation suggests this wasn’t a huge factor last month.

Now, economic improvement has been the talk of the town for weeks, fueled by the Atlanta Fed’s real-time GDP reading pointing to a big Q3 acceleration. Yet even with this chatter, economists weren’t expecting much from retail sales. All the aforementioned splits beat expectations by 0.4 or 0.5 percentage point. This tells us sentiment still hasn’t caught up with the economy’s strength, probably because all the “higher for longer” interest rate chatter has people feeling a bit blue. Eventually people will get wise and good data will lose some surprise power, but we aren’t there yet.

So Much for the UAW Strike Hitting Car Production

When the United Auto Workers (UAW) union hit the picket lines halfway through September, most presumed falling auto production was a foregone conclusion. Even though the strike started small and spread gradually to more plants, idled factories are idled factories, making production increases a tall order.

But not too tall, apparently. Buried in the news that headline industrial production rose 0.3% m/m with manufacturing output rising 0.4% was this little nugget: Production of motor vehicles and parts rose 0.3%.[vi] Even with some assembly lines dark. Now, comparing September’s output to August’s probably isn’t the most telling reading since the Fed reported some seasonal adjustment difficulties tied to annual factory maintenance shutdowns in July. That caused a big one-off auto production jump in July, which reversed sharply in August. A lot of that is statistical noise. But September’s level of motor vehicle and parts production was 2.1% higher than June, suggesting things are on pretty good footing overall.

Auto production is far from the lifeblood of the US economy or even manufacturing. But here, too, the gap between reality and expectations is telling. When the strikes began, we saw numerous economists project falling auto production and, if the strike spread wide enough for long enough, falling GDP. But as it stands, we are a long way off from that, with auto production not even in the red yet—to say nothing of spillover. Given how short past strikes have been—and how limited their economic impact has been—we think there is still plenty of room for reality to beat meager expectations.


[i] Source: FactSet, as of 10/17/2023.

[ii] Ibid.

[iii] Source: Federal Reserve Bank of St. Louis, as of 10/17/2023.

[iv] See Note i.

[v] Ibid.

[vi] Ibid.


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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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