US: Retail Sales

January 13, 2017 07:30 CST

Consensus Consensus Range Actual Previous Revised
Retail Sales - M/M change 0.7% 0.4% to 0.9% 0.6% 0.1% 0.2%
Retail Sales less autos - M/M change 0.5% 0.4% to 0.8% 0.2% 0.2% 0.3%
Less Autos & Gas - M/M Change 0.3% 0.3% to 0.4% 0.0% 0.2% 0.3%

Outside of cars, consumers weren't in much of a spending mood this holiday season. Retail sales did post a very solid gain in December, up 0.6 percent, but without autos the gain falls to only 0.2 percent. And exclude gasoline as well, which isn't really a common holiday gift, and sales come in dead flat at zero.

And gifts were on the light side this year based on department store sales which fell 0.6 percent in the month and also electronic & appliance stores where sales fell 0.5 percent. And in a clear sign of discretionary weakness, restaurant sales fell 0.8 percent for the largest monthly decline in a nearly year.

Vehicle sales, which jumped 2.4 percent in the month, pull the report to the upside as do gasoline sales which rose 2.0 percent. But retail sales excluding gasoline do show a very solid 0.5 percent vehicle-driven gain and underscore that this report, despite the softness in holiday categories, is still a solid plus for fourth-quarter GDP. And there are positives led once again by ecommerce as nonstore retailers saw a 1.3 percent monthly rise.

The bottom line is best characterized by apparel where sales were flat, posting no change for the second month in a row. Consumer spirits may be very high, and if this benefited retail sales in December it was mostly isolated to vehicles.

Market Consensus Before Announcement
Autos are not usually the focus of the December retail sales report where instead holiday spending is the key. But unit auto sales, as reported by manufacturers, were unusually strong in the month and are expected to give a significant lift to the motor vehicle component of December's retail sales report. Forecasters see retail sales rising 0.7 percent in the month. Sales at gasoline stations, which are not of course central to holiday demand, are likely to get a lift from December's rise in gasoline prices and underpin the ex-auto reading where a sizable 0.5 percent gain is the consensus. When excluding both autos and gasoline, which is the reading that is at the heart of holiday sales, forecasters see only a 0.3 percent rise in what would point to mild disappointment for the nation's merchants.

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.