Retail sales stumble in September. A bad sign for the holidays?

After a strong August, retail sales stumbled in September, stoking worries about the strength of the economy and giving off foreboding signs in the early run-up to the ever-important holiday shopping season for merchants.

Retail sales dipped an unexpected 0.3 percent last month, according to figures released Wednesday by the Commerce Department. Americans spent a combined $442.7 billion on merchandise and food service sales, an increase of 4.3 percent over September 2013.

September isn’t a huge month for retail, and economists were expecting a small slide, to the tune of about 0.1 percent. “With that said, today’s report...was a considerable disappointment,” Joshua Shapiro, an economist with MFR, Inc., writes via e-mailed analysis. “While much will depend on the path of service spending in September and then on a revised basis for the entire quarter once additional surveys are available, today’s data certainly creates downside risk.”

Nearly every spending category decreased or went flat last month. Building materials saw the biggest drop (down 1.1 percent), followed by autos and auto parts, furniture, and gasoline, all down 0.8 percent from a month ago. The drop in sales at gas stations was somewhat expected, since prices were trending downward in late summer and early fall.

The underwhelming report once again raised questions about American consumers’ ability to spend money in the face of stagnant wage growth and a middle class that is still struggling to find its feet and regain its wealth years after the end of the Great Recession. Retail sales is a big part of overall consumer spending, which (along with government expenditures on consumer health care) makes up around 70 percent of US GDP. So robust retail spending is a major contributor to a healthy economy. 

It remains to be seen, too, what it means for the fast-approaching holiday shopping season. Forecasts for this year are mixed: the National Retail Federation is predicting holiday sales of $616.9 billion, an increase of 4.1 percent from last year.  By the firms’ reasoning, lower gas prices and a renewed interest in Black Friday bargains will to spur on spending.

But others worry that those standstill wages, along with the rising costs of essential expenditures like health care and child care,  and a rise in the overall cost of living, will mean that Americans have less money leftover to spend on gifts. PricewaterhouseCoopers, a professional services firm, projects that average household spending for the holiday season will actually fall, to $684 this year, from $735 in 2013.

All of that may be true, but Mr. Shapiro notes that we may have to wait a little longer to see if September was just a comedown from an unusually strong August or a sign of a longer-term weakness. “Before panicking, though, we would point out that the August result was an above trend one, and that September’s weakness could at least in part be payback for unsustainable strength in August,” he writes. “This volatility could have been fed by the effect of an early Labor Day this year (September 1), which pulled more spending into August than normal and which the seasonal adjustment process had trouble with. We will know more about this theory after October spending data are released.”

The stock market, however, isn’t waiting. US stocks took a nosedive in morning trading Wednesday, briefly hitting an eight month low on the weak US data and jitters about Europe’s economy. The Dow plunged over 350 points by early afternoon trading.