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September Retail Sales Data Hints at ‘Cracks’ in Consumer Confidence

A slip in e-commerce sales helped push U.S. retail sales down 0.3 percent in September, marking the first decline in seven months and compounding growing fears of economic stagnation.

Economists were expecting modest retail sales growth of 0.3 percent. September’s decline was based on a revision to August retail sales data indicating that a 0.6 percent increase instead of the 0.4 percent reported in the advance estimates from last month. On a year-over-year basis, September retail sales climbed 4.1 percent when seasonally adjusted.

Wells Fargo’s senior economist Tim Quinlan, said, “The first decline in seven months for retail sales follows on the heels of an upward revision to August, which softens the blow somewhat.”

Given the escalating concern over a possible recession, the strength of consumer spending has been the much-needed counterweight, he added.

Quinlan also was quick to issue a cautionary tone: “Still, with the recent deterioration in consumer confidence and broad-based declines across various types of merchants, this report is the first hard data to indicate cracks in one of the key pillars of the economy that, so far, had been holding up rather well.”

The economist was referring to how the decline mirrored the drop in The Conference Board‘s Consumer Confidence Index for September, which saw the Index falling to 125.1 from 134.2 in August. The October report is due out on Oct. 29.

Lynn Franco, senior director of economic indicators at The Conference Board, said of the September report that escalating trade and tariff tensions appears to have rattled consumers, and that “this pattern of uncertainty and volatility has persisted for much of the year and it appears confidence is plateauing.”

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And economists at Macroeconomic Advisers also cautioned that the core data of U.S. September retail sales report “suggest somewhat less momentum for sales heading into the fourth quarter.”

That said, consumer confidence is still relatively high and some believe that 2019 should still see overall sales growth for the year.

Mickey Chadha, vice president at credit ratings firm Moody’s Investors Service, said, “We continue to expect that increased consumer confidence, wage growth, low unemployment and the strong macro-economic environment in the U.S. will result in 2019 retail sales growth of over 4.0 percent, led by e-commerce players like Amazon, off-price retailers like TJX and Ross, value and convenience-oriented retailers like Dollar General and Dollar Tree and discounters and warehouse clubs like Walmart and Target.”

The National Retail Federation, the trade group for U.S. merchants, noted that when viewed on a seasonally adjusted basis from August, retail sales in September–excluding automobile dealers, gasoline stations and restaurants–were down just 0.1 percent.

“While September uncertainty around trade policy and other issues has dampened consumer sentiment recently, consumers still have a lot going for them as evidenced by longer-term trends and factors like the tight labor market,” NFR chief economist Jack Kleinhenz said. “September is a tricky month to measure because of seasonal factors like the end of summer and back-to-school spending, and this year’s early Labor Day may have moved up some spending into the last days of August.”

By category, September’s U.S. retail sales report on a seasonally adjusted basis, according to data from the U.S. Census Bureau, showed that online and other non-store sales rose 15.6 percent year-over-year, but down 0.3 percent month-over-month. For apparel and accessories stores, sales were down 0.7 percent year-over-year, but rose 1.3 percent month-over-month.

On Friday, President Trump said the U.S. and China reached a tentative truce in their trade dispute, and expects the final details of  a “Phase One” agreement in principle to be hammered out and memorialized on paper next month—presumably in Santiago, Chile when he and Chinese president Xi Jinping are at the APEC Summit.

While an agreement, if ever inked, would indicate progress in trade talks, it wouldn’t help apparel unless the tariffs that were implemented Sept. 1 are rolled back. At present, the tariff hike that was slated for Oct. 15, raising the duty from 25 percent to 30 percent–which impacts items such as handbags–is on hold. And what happens with the next round of tariffs on Dec. 15 remains unsettled.

Most retailers that operate at scale have indicated that they are not passing tariff costs to consumers for the holiday season, although doesn’t hold true for smaller retailers and brands.