Consumed with Consumption

Publish date:


JACKSON HOLE, Wyo. -- Retail sales


for September will be released tomorrow. Market expectations center on a 0.5% overall sales increase alongside a 0.2% increase excluding autos.

First things first: Ignore the overall sales number. It is useless because it includes a warped measure of vehicle sales.


has already reported that sales of cars and trucks soared 7.6% last month (to a whopping 15.5 million-unit annual rate from 14.4 million). That is the increase that will be used to produce the September personal consumption expenditure number, which in turn will be used to produce the third-quarter GDP number (to be released Oct. 30).

Tomorrow the folks at


-- the people who produce the retail sales report -- are likely to say that vehicle sales rose something between 1.2% and 2.7%. Then again, they are almost as likely to report a decrease (note that they reported a 0.2% August sales decline despite the fact that the Commerce measure of sales jumped 4.3%). Ignore them either way.

Concentrate instead on the ex-auto sales increase. A 0.3% gain here would exactly match last year's average increase -- and 1997 was the best consumption year of the cycle. Ex-auto retail sales rose at an annualized 5.6% rate during the first two months of the third quarter on the heels of a 5.7% second-quarter increase. The consumption of ex-auto retail goods has not slowed at all during the past six months.

One thing bodes well for the apparel, building materials, furniture and general merchandise retail categories tomorrow: The September chain-store sales results proved generally good. The

Bank of Tokyo-Mitsubishi/Schroders

index posted a 5.5% year-on-year increase -- compare that to a 4.3% August gain and a 4.6% 1997 average. Meantime the


index rose 0.5% (exactly matching its average 12-month gain) to shoot its year-on-year increase to 7.7% -- fastest since May -- from 6%.

What does all this mean? That the third-quarter personal consumption expenditure, or PCE, increase will come in at about 4.1% -- even including a strike-induced 0.3% PCE decrease in July (vehicle sales plunged 13.3% that month). (Note that the PCE series, unlike the retail sales series, includes service spending; outlays for services account for roughly 59.1% of all consumption.) This marks a deceleration on the 6.1% second-quarter pace. But spending is still rising notably faster than it did last year, when it rose 3.4% -- and, again, 1997 was the best consumption year of the cycle.

A Call to ... Wallets

All of this, of course, says little about the fourth quarter -- or about any quarter after that. But do note three things.

  • Beginning from a position of hard-core solidity will do loads to help cushion the blow if and when the crashing-share-prices-and-confidence-induced spending slump comes.
  • Markets are always waaaay too down on the consumer.
  • The most recent chain-store sales numbers show acceleration, not deceleration. This morning BTM/S reported that sales were rising at a 7% year-on-year rate during the Oct. 10 week (up from a 6.2% pace during the week prior). That goes down as the fastest sales pace since the Sept. 5 week.

Also note that we can all help our own cause if we just go out and continue to do what Americans do best: spend. Our economic engine has five cylinders -- consumption, investment (both fixed and inventory), net exports and government spending -- and the economy can positively scream even if only two of them are firing (witness the first half of the year). But screw up the biggest one and there's nothing a call box and a tow truck can do. Even if both are near.

So piss away windfalls instead of saving them. Bring home that extra pair of mules. Bite the bullet and upgrade the kids to invisible braces. Pony up for that

Sanibel Island

Christmas break. Lay down for the biggest, baddest machine you can find -- then replace it in two months. Get postal with your mouse and prove that online ordering is more popular than soccer.

Do whatever it takes. Spend.

Side Dish

Look for a 0.7% (overall) and 0.5% (ex-auto) retail combo tomorrow. But do note that retail sales is the second toughest monthly economic forecast out there (durable goods are first). ... The best thing in

The Wall Street Journal

today is

Milton Friedman's


piece (on the editorial page).