Pump-Pain Spreads: Retail Sales Soar To Record High, Sentiment Sits As Record Low

BofA’s omniscient analysts expected a hotter than expected retail sales print this morning (but it came with a warning as they start to see some substitution effects as rising gasoline spend is wearing on discretionary purchases).

Once again, BofA was right, with headline Retail Sales surging 0.8% MoM (+0.3% exp), lifting sales up by 6.3% YoY…

Spending at gasoline stations soared…

Eight out of 13 categories posted increases, led by a 6.4% increase in the value of purchases at gas stations. While consumers pulled back on spending on things like hobbies and building materials, sales at furniture retailers, electronics stores and restaurants increased.

This was not good for GDP as the so-called control-group sales – which feed into the government’s calculation of goods spending for gross domestic product – increased just 0.1% after surging the prior month. The measure excludes food services, auto dealers, building materials stores and gasoline stations.

The figures indicate consumers took a breather as the third quarter drew to a close and price pressures mounted. Faster inflation is taking a bigger toll on Americans’ paychecks and squeezing their budgets.

And BofA’s data appears to confirm that spending at the pump is squeezing spending elsewhere…

The AAA national average price of gasoline has stayed above the politically sensitive $ 4-per-gallon level for the last three months. Diesel has been above $5 over the same period and is flirting with a record high amid a global refining crisis. As we’ve outlined using high-frequency data, high fuel prices affect consumer behavior and spending patterns at convenience stores and gas stations. 

The latest comes from UBS analyst Ritu Solanki, who wrote in a brief note on Wednesday about US bank earnings that delivered an inconvenient message for those hoping for a recession: the economy remains resilient, but inflationary pressures persist.

Solanki said consumer spending, loan growth, and corporate activity remain healthy, while credit performance shows limited evidence of broad deterioration.

Solanki then cited Bank of America spending data for September showing consumers are spending more on fuel with credit and debit cards, up more than 20%. The risk is that rising fuel bills are crowding out other purchases. 

BAC’s card data show accelerating fuel spending alongside softening spending across several other major categories, suggesting higher pump costs are pinching household budgets.

Total card spending per household rose about .2% in the month, slowing from 1% in August, on a seasonally adjusted monthly basis. Meanwhile, gas spending jumped 5%, up from 3.1% in August. 

Several categories contracted in September:

• Home improvement: 1.6%
• Department stores: 1.1%
• Clothing: .9%
• Furniture: .5%
• Restaurants: .4%
• Groceries: .2%
• Online spending: .1%

The spending data suggest that fuel bills are squeezing room for other purchases, translating into dismal consumer sentiment ahead of the midterm elections. 

Is it really as bad for the American consumer as it has ever been?

Chief executives at Domino’s Pizza and Albertsons acknowledged in recent earnings calls that many consumers remain in a challenging economic environment. Even so, Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. have also signaled that the consumer remains resilient.