US: Retail Sales

Fri Sep 15 07:30:00 CDT 2017

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

Soft is the assessment for the latest retail sales report which shows early Hurricane effects for some components and also downward revisions to prior months. Headline sales fell 0.2 percent which is near Econoday's low estimate with ex-auto sales up 0.2 percent and just below the low estimate. The Commerce Department could not isolate the impact of Hurricane Harvey's late month hit on Houston but weakness in auto sales, which fell 1.6 percent, and strength at gasoline stations, up 2.5 percent on higher prices, do hint at such an impact.

There are not many signs of fundamental strength in August though restaurants did rise 0.3 percent with furniture up 0.4 percent and general merchandise making the plus column at 0.2 percent. Otherwise, give back is apparent in nonstore retailers, which have been very strong but fell 1.1 percent in August, and also building materials, down 0.5 percent after two sharp prior gains. Apparel is also weak, down 1.0 percent but again following solid gains.

Turning back to revisions, they also include a 4 tenths downgrade to June's headline from a 0.3 percent gain to a 0.1 percent decline. But core readings show less revision with ex-auto ex-gas unrevised for July though revised lower for June, down 4 tenths to minus 0.1 percent, and with control group sales also unrevised in July but revised down 3 tenths in June to a 0.1 percent gain. Nevertheless, the ex-auto ex-gas reading for August, at minus 0.1 percent, is telling as it excludes the two components that are most likely to take initial hits from the hurricanes.

This report scales back what had been an accelerating pivot higher for consumer spending which nevertheless remains on course as a contributor to third-quarter GDP. Yet the effects of Harvey, and also of course Hurricane Irma, still have to play out making September's consumer spending results a difficult call.

Market Consensus Before Announcement
Unit auto sales, held down in part by Hurricane Harvey, proved very weak in August and are holding down the consensus for retail sales which are expected to increase only 0.1 percent in what would be a fraction of July's very strong 0.6 percent gain. But when excluding autos, the consensus moves up sharply to a 0.5 percent increase to match July's gain. Two other readings -- less autos & gas and control group sales -- rose 0.5 and 0.6 percent with forecasters looking for gains of 0.3 percent for both in August. Harvey effects at month end are possible with losses in durable purchases balanced against gains for basic supplies. The August results and any revisions to July will put two major pieces of third-quarter GDP in place.

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.