Consumers in October

November 16, 2005 – The U.S. CPI for consumer goods fell by 0.5% in October, partially reversing September’s 2.4% energy-driven leap. With this decline in the price level, October’s strong 0.9% increase in non-auto retail sales translates into an even stronger real gain of 1.4% (Chart 1).

Chart 1. Growth in real non-auto retail sales. January 2000 through October 2005.

Factoring in September’s 1% drop, real non-auto retail sales were only about flat for the last two months. However, the cumulative decline in energy prices since the end of October should enhance consumers’ purchasing power, and that should help November sales to reach new higher ground.

In the outlook for October consumption, this strength in non-auto retail sales will probably be more than offset by the collapse in October light vehicle sales (Chart 2). According to the BEA’s official tally, light vehicle sales plunged by 10% to a meager 14.7M unit annual rate in October.

Chart 2. Light vehicle sales. January 2000 through October 2005.

As discussed in an earlier report, there seems to be more volatility than substance in this light vehicle sales decline. Nevertheless, including autos, real consumer good purchases probably fell again in October, although probably not nearly as sharply as September’s 1.4% drop.

Then, assuming a steady trend of about 0.2% in consumers’ October real services purchases, real consumption probably edged up by about 0.1% in October after a September decline of 0.4% (Chart 3).

Chart 3. Real consumption growth. January 2000 through September 2005 and October forecast.

This would leave Q4 consumption falling at about a 1.5% annual rate, as of October, compared to its Q3 average (Chart 4). However, excluding autos, these data would be consistent with Q4 consumption growth of about 3.5%. Real consumption rose at a 3.9% annual rate in Q3, with motor vehicles & parts accounting for about 0.9 percentage points of that increase.

Chart 4. Contributions to real consumption growth. Q3 2005 and Q4 through October.

Bottom line: Except for autos, consumption seemed to be bouncing back in October.

Suzanne Rizzo