|Retail Sales - M/M change||-0.5%||-1.0% to 0.4%||-0.8%||-0.9%|
|Retail Sales less autos - M/M change||-0.5%||-1.2% to 0.3%||-0.9%||-1.0%||-0.9%|
|Less Autos & Gas - M/M Change||0.4%||0.2% to 0.7%||0.2%||-0.3%||0.0%|
Lower gasoline prices continue to tug down on retail sales. And consumers are not yet putting higher discretionary income into spending on non-gasoline categories of retail sales even as confidence has improved. Retail sales in January fell 0.8 percent after declining an unrevised 0.9 percent in December. Excluding autos, sales decreased 0.9 percent-the same pace of decline as in December. Analysts expected a 0.5 percent decrease. Auto sales declined 0.5 percent after a drop of 0.8 percent in December. These numbers tracked earlier released unit new auto sales.
Excluding both autos and gasoline sales rose 0.2 percent after no change in December. Expectations were for a 0.4 percent increase. Gasoline sales swooned a monthly 9.3 percent after dropping 7.4 percent in December.
There were some positives in the report. Gains were seen in building materials & garden supplies, electronics, miscellaneous store retailers, nonstore retailers, and food services & drinking places. Housing may be improving as builders go to these retailers for materials. But an alternative explanation is that the building material sales reflected purchases of sand and other items to deal with extreme weather. The other gains are positive as they are very discretionary-indicating an improved consumer sector.
The latest retail sales numbers are not consistent with increased discretionary income and higher confidence. One explanation may be that consumers are spending more on services than on "hard" items found in the retail sales report. The big picture is that the consumer sector is improved but the next broad data will be in the next GDP and personal income reports.
Market Consensus Before Announcement
Retail sales in December fell 0.9 percent after posting a 0.4 percent gain in November and a 0.3 percent rise in October. The December decrease was the largest negative since January 2014. Excluding autos, sales decreased 1.0 percent after rising 0.1 percent in November. Excluding both autos and gasoline sales declined 0.3 percent after advancing 0.6 percent in November. Within the core, weakness was broad based, led by miscellaneous store retailers (down 1.9 percent), building materials & garden supplies (down 1.9 percent), electronics & appliance (down 1.6), and general merchandise (down 0.9 percent). Notable gains were seen in furniture & home furnishings (up 0.8 percent) and food services & drinking places (up 0.8 percent).
Retail sales measure the total receipts at stores that sell merchandise and related services to final consumers. Sales are by retail and food services stores. Data are collected from the Monthly Retail Trade Survey conducted by the U.S. Bureau of the Census. Essentially, retail sales cover the durables and nondurables portions of consumer spending. Consumer spending typically accounts for about two-thirds of GDP and is therefore a key element in economic growth.
Consumer spending accounts for more than two-thirds of the economy, so if you know how the consumer sector is faring, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.
The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth becomes excessive and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.
Balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005. By 2007, the credit crunch was well underway and starting to undermine growth in consumer spending. Later in 2008 and 2009, the rise in unemployment and loss of income during the recession also cut into retail sales. Spending rebounded in 2010 and 2011 but was constrained by lingering high unemployment.
Retail sales are a major indicator of consumer spending trends because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity.
Strong retail sales are bearish for the bond market, but favorable for the stock market, particularly retail stocks. Sluggish retail sales could lead to a bond market rally, but will probably be bearish for the stock market.
Retail sales are subject to substantial month-to-month variability. In order to provide a more accurate picture of the consumer spending trend, follow the three-month moving average of the monthly percent changes or the year-over-year percent change. Retail sales are also subject to substantial monthly revisions, which makes it more difficult to discern the underlying trend. This problem underscores the need to monitor the moving average rather than just the latest one month of data.
In an attempt to avoid the more extreme volatility, economists and financial market participants monitor retail sales less autos (actually less auto dealers which include trucks, too.) Motor vehicle sales are excluded not because they are irrelevant, but because they fluctuate more than overall retail sales. In recent years, many analysts consider the core series to be total less autos and less gasoline service station sales. The latter is volatile due to swings in oil and gasoline prices.
Price changes affect the real value of retail sales. Watch for changes in food and energy prices which could affect two large components among nondurable goods stores: food stores and gasoline service stations. Large declines in food or energy prices could lead to declines in store sales which are due to price, not volume. This would mean that real sales were stronger than nominal dollar sales.
Since economic performance depend on real, rather than nominal growth rates, compare the trend growth rate in retail sales to that in the CPI for commodities.