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Stronger September Retail Sales: A Statistical Anomaly

Thomas Paulson
Oct 25, 2023
Stronger September Retail Sales: A Statistical Anomaly

While September's headline retail sales of +3.8% growth were above last month’s results, the nine-month trend, and economist expectations, the beat was driven largely by category mix versus a true loosening in consumers’ tight purse strings. New autos (which we recently reported on) and higher gas prices were the drivers of the September beat. As shown in the table, every North American Industry Classification System (NAICS) segment was softer versus the nine-month trend and only Nonstore Retailers (for which Amazon makes up about 40%) showed a meaningful month-over-month acceleration, up +50 basis points (Later in this week's report, we show that that improvement aligns with our Amazon data and our e-commerce preview). Other callouts include:

Source: U.S. Census Monthly Retail Trade Report

Other callouts include:

  • The NAICS code for Department stores includes off-price retailers. For August, Department stores were down -2.3%. Discount Department stores (i.e., off-price retailers) were down -0.4%, whereas non-Discount Department stores were down -9.5%. These trends align with Placer’s visitation data (below).
  • Miscellaneous store retailers include secondhand/thrift stores, which reported a material strengthening for August. The September MRTS and Placer data suggest an acceleration in September. That in turn implies that consumers still view food inflation as too hot, and as such, thriftiness remains in style.
  • Grocery stores were up only +1.6%, which is less than inflation (+2.4%). This points to sustained market share loss to club, discounters, dollar stores, and other channels.

Is the deceleration in retail sales a result of college -educated borrowers cutting back in order to repay loans? This has been a hot debate among economists and Wall Street analysts over the past several months, including ourselves. This week the NY Fed released their own study on the topic which concluded that “The payment resumption will have a relatively small overall effect on consumption, on the order of a 0.1 percentage point reduction in aggregate spending from August levels, and a (delayed) return of student loan delinquency rates back to pre-pandemic levels. Across groups, we see little variation in spending responses but find that low-income borrowers, female borrowers, those with less than a bachelor’s degree, and those who were not in repayment before the pandemic expect the highest likelihood of missed student loan payments...On average, borrowers expect to reduce consumption by around $56 per month from their average monthly spending reported in August. If we scale this monthly decline up to the 28 million borrowers with federally-managed loans currently in forbearance, this suggests nearly a $1.6 billion decline in monthly spending, or 0.1 percentage point of August 2023 personal consumption expenditures (PCE).” The study also found that the portion of borrowers who expect to miss paying loans is nearly identical to the level that did miss paying loans pre-pandemic.

The study went on to say, “One reason for these relatively small effects is that potentially many borrowers already made changes to their savings and consumption decisions after learning that payments would certainly resume in October. The chart below shows some evidence for this hypothesis. Here, we plot the daily deposits at the U.S. Treasury by the Department of Education, of which the overwhelming majority are federal student loan payments. We see that deposits increased after the U.S. Supreme Court decision reversing the broad student loan forgiveness program and continued to rise up until the end of the zero percent interest waiver. This pattern seems consistent with some borrowers electing to make bulk payments against their loans after learning that their loans would not be forgiven and before interest resumed.” Said differently, while September retail sales were slower than the prior nine-month and August trends, there are many potential causes, including increased payments on student loans. With that now in the trend line, one should not expect another sequential step-down as result of student loan repayments.

Source: Federal Reserve Bank of New York, "Borrower Expectations for the Return of Student Loan Repayment" (10/18/23)

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Thomas Paulson

Director of Research and Business Development,

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more. He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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