Implications:  It looks like Hurricane Florence hit retail sales hard in September, with restaurant & bar sales down 1.8% for the month, the largest drop for any month since late 2016.  As a result, retail sales grew less than expected in September, but we wouldn't read too much into today's release.  Retail sales still grew 0.1% in September, the eighth consecutive monthly gain.  And excluding restaurants & bars, retail sales were up 0.4%, and the gains in September were broad-based, with ten of thirteen major categories showing rising sales, led by autos and non-store retailers (internet & mail order sales).  Non-store retailers now make up 11.4% of all retail sales, a record high, and are up 11.4% over the past year.  Overall retail sales are up a solid 4.7% from a year ago (and up an even stronger 5.7% excluding auto sales).  After plugging in the retail numbers, "real" (inflation-adjusted) consumer spending in the third quarter looks to have grown at about a 3.0% annual rate, supporting our projection of about 4.0% real GDP growth for Q3.  Given the tailwinds from deregulation and tax cuts, we expect an average real GDP growth rate of 3%+ in both 2018 and 2019, a pace we haven't seen since 2005.  Jobs and wages are moving up, tax cuts have taken effect, consumer balance sheets look healthy, and serious (90+ day) debt delinquencies are down substantially from post-recession highs. Some may point to household debt at a record high as reason to doubt that consumption growth can continue.  But household assets are at a record high, as well.  Relative to assets, household debt levels are the lowest in more than 30 years.  In other words, there's plenty of room for consumer spending – and retail sales – to continue to trend higher in the months to come, but don't be surprised if the series remains choppy in the short-term due to Hurricane Michael.  In other news today, the Empire State index, a measure of factory sentiment in New York, rose to a 21.1 in October from 19.0 in September, signaling continued optimism in the region.  On the inflation front, import prices rose 0.5% in September, while export prices were unchanged.  The large rise in import prices was due to a 4.1% increase in fuel costs. Export prices remained unchanged due to lower prices for farm exports offsetting higher nonagricultural prices.  Import prices are up 3.5% in the past year, while export prices are up 2.7%, both signaling the need for continued rate hikes from the Fed.

Click here for PDF version