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Analysis: September sales bode well for holiday

Overall, September was a good month for retail sales with a substantial rise in spending supported by both higher gas prices and an increase in the number of people buying vehicles. Outside of these two segments, especially in pure retail and foodservice, spending also ticked up albeit to a more moderate degree.

Although the devastating hurricanes boosted the numbers, mostly thanks to stimulating demand to replace damaged cars and by initially pushing up gas prices, the figures nonetheless demonstrate the robustness of the American consumer. Indeed, the fear for September was that as gas prices rose, spending on other things would fall back. In the end, this did not materialize, and consumers used modest gains in wages - supported by the robust labor market - to carry on buying even as they incurred additional expense.

The comfortable position of the consumer is underscored by our weekly sentiment tracker. This showed a little more caution about future household finances creeping in during September but also revealed very few significant changes in purchasing habits across the month. In our view, the American consumer has quite a bit of firepower, even if some of this is being funded by credit. Excluding energy, more subdued inflation also helped to buoy the consumer mood.

On a sector level, home improvement retailers performed well with a 7.7% uplift in sales over the prior year. There is some benefit here from the rebuilding effort after the various disasters, but we believe that the bulk of the hurricane-related uplift has yet to come through. As such, a surge of household projects related to winter preparation played as much of a role in lifting the DIY sector as did other factors.

At the other end of the spectrum, electricals stores remain the laggards of retail with a 5.3% year-over-year decline in sales this month. Some of this is down to the shift to sales via other channels and retailers, but some is also due to a relative lack of interest in products. It remains to be seen whether the release of new devices, like Apple's iPhones, will help lift this sector as we move into the holiday season. We remain skeptical that it will do so to any significant degree.

Using the September numbers as a guide to holiday performance is challenging, not least because of the various exceptional factors which have impacted the month. However, stripping these out suggests that the consumer is in a good and stable position which bodes well for the critical upcoming trading period. That said, it is clear that while the consumer is still willing and able to spend, they are doing so conservatively and are carefully weighing up the necessity and the value of purchases.

In this type of environment, retailers have to work hard to stimulate demand. In our opinion, this means that while there are gains to be had over the holidays, those gains will be hard won and will be insufficient to benefit all retailers.
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