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Sept. retail sales report indicates strong consumer resilience: economist

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Robert Rosener, Morgan Stanley Senior US Economist, joins Yahoo Finance Live with reaction to the September retail sales report.

Video Transcript

BRIAN SOZZI: All right, the latest retail sales blew away estimates, but not so for consumer confidence. Morgan Stanley senior US economist Robert Rosener is here to dive into these reports. Robert, good to see you this morning. Julie just brought up a very good point. Lots of mixed reads on the state of the consumer, strong retail sales report, consumer confidence disappointed. What's the true state of the consumer right now?

ROBERT ROSENER: Yeah, well, thanks, Brian. And thanks for having me. When you look at this mix of consumer data, it certainly looks like we're forecasting through a bit of a fog. But when you take the totality of what we're seeing, especially today's retail sales report, it shows a lot of resilience on the part of the consumer. And we continue to see that as being one of the key growth engines to keep the US economy on track on its recovery in the months and quarters ahead.

And I would add there that we certainly saw that diminishing sentiment, especially around supply bottlenecks, their implications for inflation, and also consumers having a little bit more of a dour attitude about COVID developments, particularly with the spread of the Delta variant in recent months. That showed up pretty prominently in the confidence numbers, but what we have seen is that that resilience on the part of the consumer has led to what looked like a pretty seamless transition from spending on services back to spending on goods. And so, you see underlying this that, yes, consumer sentiment may be dampened, but the resilience, the spending power, and the fundamentals behind the consumer remain strong.

JULIE HYMAN: Robert, something I wondered when I saw this retail sales report is if we are already getting any kind of pull forward from the holidays. We keep hearing from manufacturers and pundits, shop early, shop early, shop early because we know there already are delays, and they're likely to only get worse. Do you think any of that showed up in this report?

ROBERT ROSENER: You know, September's early for the holidays, but it's certainly possible we could see some of that preliminary spending, and we could see that showing up in the months ahead as well. And I think that's an important picture that we have to look at again when we think about what this means for the total economy because we do know from a lot of retailers that inventories are very constrained. And we see that at the aggregate level as well. And so, the patterns of pricing, the patterns of when goods are available, all of that may look very different this holiday season.

JULIE HYMAN: Yeah, most definitely. Something else in this consumer sentiment report that just crossed, this University of Michigan report, some of the commentary that I'm seeing from the survey of consumers chief economist Richard Curtin has to do with people's sentiment around government, which I thought was quite interesting. When asked about their confidence in economic policies, favorable evaluations fell to 19% in early October from 31% in April, which I guess was the most recent high. In terms of government support, do you think that it is necessary that we see this spending package pass, even if it's a smaller one than the initial plan was for?

ROBERT ROSENER: Yeah, that's a great question. And certainly the government opinions are influencing the sentiment numbers as well. I think an interesting point that's related to that is that we got this strength in the September retail sales data in a month that we also saw the expiration of the supplemental unemployment benefit. So that was a big tail off in terms of fiscal stimulus. But what we also know for the month of September is that the labor market generated a lot of jobs-- fewer jobs than expected, but it generated a lot of income. It was the strongest month for income growth on the payrolls report since last August 2020.

So, quite an interesting mix with maybe fewer than expected jobs getting added, but with higher earnings, higher hours. The labor income is there. Now I say all of that to sort of tie in the stimulus, tie in the government policy that there are some self-sustaining engines going on in the economy that can keep powering growth going forward.

But of course, forward-looking fiscal policies are going to be important in shaping the economic outlook. We don't think that a lack of fiscal policy would be incredibly deleterious to the outlook for next year, but it certainly is an important source of support. And it's an important source of support for the long run potential of the economy as well when we're thinking about things like infrastructure spending, when we're thinking about childcare issues. All of these things wrap into what we're seeing in the labor market today. And so it's a complicated web, but government policy is certainly an important component of that.

BRIAN SOZZI: Is one of the takeaways here, though, that maybe we're making too much about inflation? That the consumer has enough money in savings, their incomes are, in fact, going up that maybe inflation isn't that big of a deal for most households.

ROBERT ROSENER: You know, I would be a little bit more cautious about that because we have seen in the consumer sentiment data that inflation is a top concern for consumers. And importantly, while we've been seeing that show up in wages, we've been seeing pretty robust wage growth in the aggregate level. And in most sectors, inflation is actually outpacing wages. And so that is going to start to put pressure on the consumer wallet at a certain point. And that's why we're seeing indicators over recent months on a nominal basis growing faster than those on a real inflation adjusted basis.

And so, I don't think we can completely look past inflation, particularly the inflation that's related to these supply bottlenecks, because it does really hold an important key to household budgets, as well as how robust we're going to see the real economy growing.

BRIAN SOZZI: Point well taken. Robert Rosener, Morgan Stanley senior US economist, have a great weekend.