US: Retail Sales

Fri Nov 13 07:30:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Retail Sales - M/M change 0.3% 0.1% to 0.5% 0.1% 0.1% 0.0%
Retail Sales less autos - M/M change 0.4% -0.2% to 0.6% 0.2% -0.3% -0.4%
Less Autos & Gas - M/M Change 0.3% 0.1% to 0.7% 0.3% 0.0%

Retail sales slowed in October but fundamentally remain solid. Sales rose only 0.1 percent, 2 tenths under the Econoday consensus. But when excluding vehicles, which slipped back after surging in prior months, and when also excluding gasoline stations, where sales once again fell on price weakness, core sales rose a respectable 0.3 percent which hits the consensus.

And there are solid gains including for housing-related components of furniture & home furnishings and building materials & garden equipment. Nonstore retailers also show a strong gain as do restaurants.

Aside from vehicles and gas, other areas that declined are electronics & appliance stores, grocery stores, and the big category of general merchandise sales. Declines in the latter may be related to import-price effects which are deflating sales. A positive, however, is a gain for department stores which are a subset of general merchandise. Apparel sales, which are definitely being held down by import prices, were unchanged following two small declines.

Year-on-year rates really tell the story especially a respectable plus 4.1 percent rate for sales excluding gasoline stations, a component that is down 20.1 percent and has been badly skewing total sales all year. Total sales are up only 1.7 percent.

The headline is weak and year-on-year rates did ease off, including for core ex-auto ex-gas to plus 3.5 from 3.8 percent, but this report is better than it looks, showing underlying strength that shouldn't scale down expectations for a December FOMC rate hike.

Market Consensus Before Announcement
Retail sales are expected to accelerate in October, to a 0.3 percent gain from September's disappointing 0.1 percent gain. Unit auto sales were surprisingly strong and resilient in October, edging up fractionally to a 12-year high but not quite showing enough strength from September to guarantee monthly growth. Gas prices firmed in October which should help gas stations where sales have been very weak and have been skewing total sales lower. Excluding autos and gas, core retail sales, which are on a 5-month winning streak, are expected to rise a respectable 0.3 percent. But a risk to the expected gain is October's weather which was unusually warm and may have hurt sales of seasonal goods.

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.