US: Retail Sales

Fri Dec 11 07:30:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Retail Sales - M/M change 0.3% -0.2% to 0.5% 0.2% 0.1%
Retail Sales less autos - M/M change 0.3% -0.1% to 0.6% 0.4% 0.2% 0.1%
Less Autos & Gas - M/M Change 0.3% 0.3% to 0.8% 0.5% 0.3%

Once again the headline for the retail sales report understates underlying strength. Total retail sales rose only 0.2 percent in November which is just under the Econoday consensus. But weakness here came from vehicles of all places which otherwise have been one of this year's standout component for this report. Excluding vehicles, sales rose 0.4 percent which is 1 tenth above expectations. Excluding both vehicles and gasoline, core sales rose a very solid 0.5 percent which is 2 tenths above expectations. A key discretionary category, restaurants, shows yet another very strong gain, this at 0.7 percent in the month. Also showing sizable gains are electronics & appliances, clothing & accessories, non-store retailers (once again), and the general merchandise category where, despite a deflationary pull from falling import prices, sales jumped 0.7 percent in the month.

Vehicle sales fell 0.4 percent in the month on top of October's 0.3 percent decline. These declines are a bit of a surprise given steady readings in unit sales of vehicles which have been holding firmly at 12-year highs. Whether there's a rebound ahead for vehicle sales, which had been so strong through the year, will be key to consumer spending going into the new year. Sales at gasoline stations continue to contract, at minus 0.8 percent in the month. Furniture sales, which have been strong, fell back as did sales of building materials & garden supplies, which have been soft.

Year-on-year rates show nonstore retailers out in front, at plus 7.3 percent to confirm acceleration for online sales. Restaurants are right behind at plus 6.5 percent year-on-year followed by furniture and by sporting goods, both at plus 5.4 percent. All together, core retail sales are up a moderate 3.6 percent year-on-year held down by contraction in electronics & appliances and soft readings for grocery stores and general merchandise. Outside the core, motor vehicles are still in the thick of things, at plus 4.0 percent year-on-year, with gasoline stations down 19.9 percent. Total retail sales are up only 1.4 percent but the gain goes up to 3.6 percent (the same as the core) when excluding just gas.

Taken together, rates of growth are no more than moderate but certain areas are posting eye-catching results, results that point to what must have been a successful Black Friday sales push. The consumer, boosted by a solid labor market and having more money to spend because of low gas prices, is definitely alive and spending going into the final weeks of the holiday season. In a methodology note, the November data reflect a new sample and prior levels have been revised (mostly lower).

Market Consensus Before Announcement
Consumer spending has been lukewarm going into year-end but in part reflects low sales at gasoline stations which are getting hurt, and continue to get hurt, by low prices. But vehicle sales have been strong though unit sales in November, holding for a third month at a 12-year high, aren't pointing to a monthly gain for the motor vehicle component. Ex-auto ex-gas core sales have been showing some life with October coming in at plus 0.3 percent. For November, forecasters see core sales rising another 0.3 percent despite unseasonably warm weather that likely held down sales of winter goods. Total retail sales are also expected to rise 0.3 percent as are ex-auto sales.

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.