Sunday, 18 of February of 2018

Economics. Explained.  

Category » Retail Sales

Retail Sales

February 14, 2018

Retail sales surprisingly declined 0.3% in January after having been unchanged in December.  However sales surged by 2.0% in  September, 0.7% in October and 0.8% in November.  During the course of the past year sales have risen 3.6%.  Our sense is that sales rose sharply in the months immediately following the two hurricanes and some sales shifted into those months at the expense of sales that would typically have occurred in December and January.  The trend rate has not change during that period of time, just the monthly pattern of sales.

Sometimes sales can be distorted by changes in autos which tend to be quite volatile.  In this particular instance car sales fell 1.3%.

Fluctuations in gasoline prices can also distort the underlying pace of retail sales.  If gas prices rise, consumer spending on gasoline can increase even if the amount of gasoline purchased does not change.  Gasoline sales rose 1.6% in January.  While higher gas prices boost the overall increase in sales, they typically do not reflect an actual increase in the volume of gasoline sold.

Perhaps the best indicator of the trend in sales is retail sales excluding the volatile motor vehicles and gasoline categories.  Such sales fell 0.2% in January after having been unchanged in December.  But such sales rose 0.9% in September, 0.5% in October and 1.0% in November.  As noted above, this pattern seems to reflect a post-hurricane surge in sales which shifted some sales into the September-November period at the expense of sales in December and January.   In the last year retail sales excluding cars and gasoline have risen 3.7%.

While there has been a lot of disappointment about earnings in the traditional brick and mortar establishments (like Macy’s, Sears, K-Mart, and Limited) the reality is that they need to develop a better business model.  The action these days is in non-store sales which have been growing rapidly. Consumers like the ease of purchasing items on line.  While sales at traditional brick and mortar general merchandise sales have risen 3.0% in the past year, on-line sales have risen 11.2%.  As a result, their share of total sales has been rising steadily and now stands at a record 11.2% of all retail sales.

We believe that retail sales will continue to chug along at a 2.5% pace for some time to come..  First of all,  existing home sales are selling at a rapid clip and would be selling at a faster pace if there were more homes available for sales.  Consumers do not purchase homes and cars — the two biggest ticket items in their budget — unless they are feeling confident about their job and the future pace of economic activity.

Second, the stock market is close to a record high level despite its recent correction.  That increase in stock prices boosts consumer net worth.

Third, all measures of consumer confidence are at their highest levels thus far in the business cycle, and consumer confidence from the Conference Board is at its highest level since the early part of 2004.

Fourth, cuts in individual income tax rates will boost sales in 2018.

Finally, the economy is cranking out 170 thousand new jobs every month which boosts consumer income.  Consumers have paid down a ton of debt and debt to income ratios are the lowest they have been in 20 years.  That means that consumers have the ability to spend more freely and boost their debt levels if they so choose.

Thus, the pace of consumer spending seems steady.  We continue to expect GDP growth to quicken from 2.5% in 2017 to 2.9% this year.

Stephen Slifer


Charleston, SC

Car and Truck Sales

January 3, 2018

Unit car and truck sales rose 2.1% in December to a 17.76 million pace after having declined 3.4% in November.  A 17.76 million pace is robust but still 1.6% lower than it was at this time last year.  We expect car sales to remain relatively robust for some time to come for a couple of reasons.

First, home sales remain at s solid pace.  Because car and home sales are the two biggest ticket items in a consumers budget, it is not surprising that a change in trend will be evident in these two categories first.  In this case both car and home sales seem pretty solid.

Second, the stock market is at a record high level.  That is an indicator of investor sentiment.  A rising stock market also boosts consumer net worth.

Third, all measures of consumer confidence are at their highest levels thus far in the business cycle.

Fourth, tax cuts to both individual and corporate income tax rates will be forthcoming in 2018.

And, finally, consumers have paid down tons of debt and are now in a position to spend.  Jobs are climbing at a pace of 170 thousand per month.  The unemployment rate has fallen to a level that is below the full employment mark.  Consumers are benefiting from stable and still low gasoline prices. For all of these reasons we look for  2.9% GDP growth in 2018.

Stephen Slifer


Charleston, SC