September retail sales dipped -0.1% y-o-y in nominal terms (vs. 3.8% y-o-y growth in August). The outcome was well below consensus estimate of 3.0% and our more conservative forecast of 2.3%. Moreover, sales contracted in real terms by 3.6% y-o-y (vs. +0.8% in August).

Nominal car sales continued to contract (-9.8% y-o-y vs. -9.7% in August). Excluding car sales, nominal retail sales growth eased to 3.1% y-o-y (vs. 7.8% in August). In real terms, growth (ex cars) fell 0.1% y-o-y (vs. +4.8% in August).

In m-o-m sequential terms, nominal sales rose marginally by 0.3% after the 7.2% contraction seen in August, but declined in real terms sales (-0.7% vs. -7.7% in August). The sequential contraction in September was widespread but significant for 'food & beverages' (-4.9% m-o-m sa), 'watches & jewelry' (-4.0%) and 'super markets' (-3.5% m-o-m sa).

Implication
The uncertain global economic outlook is turning consumer wary about splurging, especially on big ticket items like cars.

Apart from cars and luxury goods, even sales at supermarkets and department stores are registering lower sales on a sequential basis, notwithstanding very favorable labor market conditions.

These are signs that the global economic slowdown is not just affecting the export sector, but is also spilling over to the more domestically oriented sectors through the confidence channel.
With the global economic uncertainty to stay with us for a while still, shoppers will stay cautious and constrain spending in the quarters ahead.

Despite this, inflation is a still a concern. On this front, MAS's "Operation Tweak--slightly reducing the slope of the NEER band, but maintaining the width and not re-centering--struck the right balance. The slower pace of appreciation factors in the weaker growth outlook and the width of the band affords some flexibility in tackling both growth and inflation risks.

Unless we soon see more decisive policy steps forward in Europe, however, the MAS may sooner rather than later have to take more advantage of the downward flexibility, initially within the band.

Bottom line: Singaporean shoppers are scaling back spending in response to global economic downside risks and will continue to keep a lid on consumption.