US: Retail Sales

Wed Apr 13 07:30:00 CDT 2016

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

Retail sales, down a disappointing 0.3 percent in March, were pulled lower by auto sales but unfortunately do show wider weakness. Auto sales fell a very steep 2.1 percent in March and last posted a monthly gain way back in November. This is the biggest drop for vehicle sales since February last year.

In an offset, gasoline sales, boosted by higher prices at the pump, jumped 0.9 percent. Excluding just gasoline -- which offers a very telling reading on consumer demand -- retail sales fell 0.4 percent. Excluding both autos and gasoline, sales rose 0.1 percent which is 2 tenths below expectations.

A look at year-on-year rates helps to clarify trends in the data. Overall retail sales are up only 1.7 percent, well down from 3.7 percent in February. Excluding autos, sales are up only 1.8 percent. The best reading comes from ex-auto ex-gas which is at plus 3.9 percent for, however, a 9 tenths decline from February. The reading of the greatest concern, however, is once again excluding only gasoline where year-on-year sales slowed to plus 3.3 percent from February's 5.4 percent.

A sign of the month's weakness is contraction at restaurants, which like autos is a discretionary category and which fell a very sharp 0.8 percent in the month. A plus is building materials which rose a very strong 1.4 percent for a second month in gains that point to extending strength for residential investment. Other components include a sharp decline for apparel and for department stores, offset by a second straight strong gain for health & personal care.

There are upward revisions to February but they definitely do not offset weakness, despite whatever uncertainties over Easter adjustments, in the immediate month of March. This report, especially the stubborn weakness for auto sales, raises key questions over the health of the consumer, who is benefiting from low unemployment but not from wage strength. The report especially raises questions over the outlook for overall economic growth.

Market Consensus Before Announcement
Weakness for auto sales is expected to hold down retail sales to only a 0.1 percent gain in March. Otherwise, sales are expected to show solid strength, at plus 0.4 percent for March's ex-auto reading and plus 0.3 percent for ex-auto ex-gas. Growth for the core ex-auto ex-gas reading has been holding up well at a solid year-on-year trend of just over 4 percent vs roughly 3 percent for total sales. Price weakness for gasoline has held down sales at gasoline stations but a rebound, tied to the recovery in oil prices, is expected for March. This report will close out the first quarter for retail sales which in February and January, pulled down by weak vehicle sales, showed back-to-back declines.

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.