Lower gas prices came to the rescue of the retail sector in September, but will the benefit last into the holiday season?

While September cannot be described as a stellar month for retail, it is encouraging to see growth picking up after a very weak August. Across all categories sales rose by 2.5% on a year-over-year basis, this compares favorably to 1.4% in August.

Overall growth was dragged down by the lower price of gas, which resulted in sales at gas stations plummeting by 20%. When these are removed from the equation, retail sales increased by a robust 5.2%, with particularly strong performances coming from the auto and foodservice segments. The numbers are all the more impressive given that the comparatives from last year are fairly tough, mostly thanks to the boost to household finances that started to filter through in September 2014 due to the lower cost of fuel.

Against the current backdrop of fairly stagnant wage growth and a more uncertain consumer, it is fuel prices that have – yet again – come to the aid of retail sales. After a few months of increasing, the average cost of regular gas dropped steadily throughout August and September and ended the month at around $2.29 a gallon – the lowest price since early February. This has provided a fillip to consumer finances at a time when household budgets might otherwise have been much tighter.

As beneficial as the drop in fuel has been, the concern for retailers is that this will not last. With gas prices now rising again – the average price of a regular gallon touched

$2.31 last week – it is likely that consumers will start to behave more modestly in terms of spending as the holiday season approaches. This is especially so given the modest numbers coming from economic measures including wage growth and job creation.

Year over-year retail sales growth for September (%)

"Gas prices will make the difference between a reasonable and a good holiday season for retailers."

This dynamic should be of particular concern to core retail, which appears to have been one of the main beneficiaries of lower gas prices. Indeed, this month saw pure retail account for some 60.1% of all retail sales, the highest proportion since February when low gas prices also provided a boost to the segment.

Within core retail, performance across the categories remains uneven. The home related sectors continue to forge ahead, helped by reasonable levels of activity within the housing market. However, electricals remains very sluggish with a 5.2% decline in sales over last year; that said, we expect this to reverse as new consumer electronics products are released in time for the holiday season. On a more positive note, clothing saw an upswing this month with year-over-year growth of 5%, aided by the boost to household budgets as well as a colder, wetter period of weather across many parts of the country which fuelled sales of fall collections.

Without robust growth in the underlying fundamentals of the consumer economy, sales over the next few months will be dependent on the direction of gas prices: these will make the difference between a reasonable and a good holiday season for retailers.

This piece is taken from our Viewpoints service, which provides subscribers with analysis and opinion of retailers’ results as and when they are released. For more a free trial of this service, click below and complete your details.

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