October retail sales show strength, with prospects high for the holidays

On the heels of a sluggish September and with the holiday shopping season officially having commenced, the retail sector received a bit of good news today, with both the National Retail Federation (NRF) and the United States Department of Commerce issuing positive retail sales data for the month of October.

Commerce reported that October retail sales at $444.5 billion were up 0.3 percent compared to September and up 4.1 percent compared to October 2013, and total retail sales from August through October are up 4.5 percent annually.

The NRF said that October retail sales, which exclude automobiles, gas stations, and restaurants, were up 0.7 percent seasonally-adjusted month-to-month and increased 4.4 percent annually on an unadjusted basis, while the three-month moving average for annual growth came in at 3.9 percent.

“Consumers regained the energy to spend again in October, removing some of the concerns surrounding the slower consumer spending results seen as of late,” said NRF Chief Economist Jack Kleinhenz in a blog posting. “Much of the spending power stems from lower gas prices, accelerated job growth, wages and salary gains, and the recent rise in stock prices. We expect that the next two months will bring forth confident holiday shoppers who have the ability and desire to spend on gifts and more.”

In October, the NRF issued its 2014 holiday sales forecast. Holiday sales—as defined by the NRF—are sales in the months of November and December and exclude autos, gas, and restaurant sales. For 2014, the NRF said it expects holiday sales to grow 4.1 percent compared to 2013 to $616.9 billion, which is above the actual 3.1 percent for 2013.

The NRF said that holiday sales have grown by an average of 2.9 percent over the last ten years, which includes its 2014 projection, and are pegged to account for 19.2 percent of the retail sector’s $3.2 trillion in 2014 annual sales, and if the 4.1 percent 2014 annual increase is reached, it would mark the first time holiday sales have headed up more than 4 percent annually since 2011.

The NRF’s holiday sales forecast, according to the organization, is based on an economic model that uses several different types of indicators, including consumer credit, disposable personal income, and previous monthly sales releases.

As previously reported, with retail sales growth still relatively modest, there still remains a mixed bag of signals and headwinds on the economic front, including a slightly declining unemployment rate, improving consumer confidence data, as well as encouraging automotive sales and housing data.

And these things continue to occur, though, against the backdrop of sluggish, but improving GDP growth and some uncertainty regarding the economy.

Supply chain stakeholders describe the current market environment as it relates to retail supply chains as steady for the most part. With the impact of the harsh winter weather in the background, shippers were active in rebuilding inventories in advance of Peak Season, especially with ongoing congestion issues at West Coast ports still an issue.

HIS Global Insight Director US Consumer Economics Chris G. Christopher observed in a research note that October gains were broad based after a “pretty dismal” September.

“Consumers came back to life in October after lying low in September,” he wrote. “Discretionary spending improved significantly, sending a clear signal that this holiday retail season is looking significantly brighter than last year. In August, consumers got most of their back-to-school and automobile spending out of the way. When September rolled around, they took a breather and decided to wait in line and get the newest Apple iPhone. September’s poor performance on the retail sales front can be viewed as payback for a good August in terms of discretionary and auto spending. Real consumer spending in the fourth quarter is likely to be north of 3 percent due to falling gasoline prices, increased levels of consumer confidence, and gains in disposable income.”

The IHS economist added that increasing levels of consumer confidence, lower gasoline prices, and better job prospects are helping to better position the 2014 holiday sales season’s prospects compared to a year ago, with IHS forecasting a 4.2 percent annual increase in holiday sales, which is nearly exactly in line with the NRF forecast.