Surprise Retail Sales Results Confirms Views on 4 Holdings

We’ve received the August Retail Sales report, one of the last economic data inputs before the Fed concludes its latest policy meeting, and it shows consumers spent more than expected during the month.

Headline retail sales, which includes restaurant spending, rose 0.6% sequentially, keeping the momentum, we saw in July going, not falling to 0.2% as the market expected. On a year-over-year basis, which is our preferred way to assess the data, headline retail and food service sales rose 5.0% while retail only climbed 4.8%.

What’s interesting is that year-over-year spending in both categories accelerated compared to July, a month that included Amazon’s AMZN most recent Prime sales event and competing efforts by the likes of Target TGT, Walmart WMT and others. The year-over-year decline in gas station retail sales of 0.7% means spending in other categories accelerated. That stronger level of spending reaffirms our view on American Express AXP shares, but the key catalyst for us to revisit our $340 price target remains the expected Platinum card refresh.

What Were Those Categories?

Non-store retail sales accelerated to 10.1% year over year in August from 7.8% in July. We see that confirming our view that price-sensitive shoppers would turn to digital shopping like Amazon and Costco COST, and we have confirmation when compared against Costco’s August adjusted e-commerce sales of 18.3%.

Spending in August on clothing and related accessories climbed 8.3% year over year, a brisker pace than July’s 6.4% figure. That’s a nice confirmation point for our position in TJX TJX shares. Department Store spending continues to wane, falling 1.0% in August.

Consumer spending at grocery stores also picked up speed in August, rising 3.5% compared to year-ago levels versus 2.6% in July. Good for Costco and Amazon as both continue to lean into fresh food and grocery.

Implications of the August Retail Sales Report

Following the stronger-than-expected results found in the August Retail Sales report, an uptick in U.S. export prices, and the sequential improvement in manufacturing activity found in the August Industrial Production report, led the rolling GDP forecast published by the Atlanta Fed, better known as its GDPNow, to be revised up to 3.4% for the current quarter. Exiting last week, that model pegged GDP at 3.1%.

With the balance of August economic data and all the September-related figures yet to come, we could see that the GDPNow model swing. But the upward revision to this model as the Fed holds its September policy meeting argues more against the Fed going big when it comes to telegraphing rate cuts in its updated set of economic projections than not.

We will revisit this, though, following Wednesday's August Housing Starts report, but our comment above helps explain why the market is not moving higher following the revelation that consumers spent more in August than expected.

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At the time of publication, TheStreet Pro Portfolio was long AMZN, AXP, COST and TJX.