US: Retail Sales

Wed Oct 14 07:30:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Retail Sales - M/M change 0.1% -0.1% to 0.8% 0.1% 0.2% 0.0%
Retail Sales less autos - M/M change -0.1% -0.3% to 0.4% -0.3% 0.1% -0.1%
Less Autos & Gas - M/M Change 0.3% 0.2% to 0.6% 0.0% 0.3% 0.2%

Weakness at gasoline stations, where low prices are depressing sales totals, continues to exaggerate weakness in retail sales where the headline inched only 0.1 percent higher in September. Gasoline sales fell 3.2 percent in the month, excluding which the headline looks far more respectable at plus 0.4 percent.

And there are plenty of tangible positives in the data including a third straight solid gain for motor vehicles, at plus 1.7 percent in September, and a second straight outsized gain of 0.9 percent for restaurants. Both of these are discretionary categories and point to underlying consumer strength. Clothing stores are also posting strong gains, up 0.9 percent despite negative price effects from lower import prices.

Price weakness is not only pulling down gasoline sales but also sales at food & beverage stores which fell 0.3 percent. But there are signs of consumer retracement in the September report with the general merchandise category, which is very large, down 0.1 percent, and with health & personal care stores unchanged. Building materials fell 0.3 percent with electronics & appliance stores down 0.2 percent.

Looking at adjusted year-on-year rates helps clarify the trends. Excluding gasoline stations, retail sales are up a very respectable 4.9 percent which is well above the less impressive 2.4 percent gain for total sales. Sales at gasoline stations are down a year-on-year 19.7 percent. Leading the positive side are motor vehicles, up 8.8 percent, and restaurants, up 7.9 percent -- both robust gains. Core sales, that is ex-auto ex-gas, the year-on-year rate is a moderate plus 3.8 percent for a 1 tenth decline from August.

One of the very biggest positives for the consumer right now, aside from strength in labor demand, is the weakness in pump prices, which however in this report, where dollar totals are tracked and not sales volumes, turns into a negative. Still, the headline is weak and will likely lower third-quarter GDP estimates -- but for Fed policy, because the weakness is skewed due to gas prices, the results are harder to assess and may prove neutral.

Market Consensus Before Announcement
Forecasters don't see much strength for retail sales, at a consensus gain of only 0.1 percent for September. Auto sales, based on strong unit sales, are expected to be a positive, excluding which the consensus is minus 0.1 percent which reflects price weakness at gas stations. Excluding both autos and gas, the outlook is more upbeat with another respectable gain expected, at plus 0.3 percent. Consensus outcomes in this report would not turn up the heat for a Fed rate hike, but there is uncertainty in the sample with a wide spread for the headline and ex-auto readings.

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.