Thursday, 19 of April of 2018

Economics. Explained.  

Category » Retail Sales

Retail Sales

April 16, 2018

Retail sales rose 0.6% in April after having declined declined in each of the previous three months.  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, January, and February.  The trend rate has not change during that period of time, just the monthly pattern of sales.  In addition, extremely bitter cold and snow undoubtedly dampened sales in the winter months.  We should see a healthy snapback this spring.

Sometimes sales can be distorted by changes in autos which tend to be quite volatile.  In this particular instance car sales rose 2.0%.

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 fell 0.3% in March after having risen 0.1% in February.  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 rose 0.3% in both February and March.   In the last year retail sales excluding cars and gasoline have risen 3.9%.

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 stores have risen 3.2% in the past year, on-line sales have risen 9.4%.  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 2.4% 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 sale.  Car sales are solid at a 17.4 million pace.  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 close to 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 200 thousand new jobs every month which boosts consumer income.  Consumers have paid down a ton of debt and debt to income ratios are very low.  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% last year to 2.8% this year.

Stephen Slifer


Charleston, SC

Car and Truck Sales

April 3, 2018

Unit car and truck sales rose 2.5% in March to a 17.4 million pace after having declined 0.6% in February.  A 17.4million pace is relatively robustand is 4.1% higher 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, all measures of consumer confidence are close to their highest levels thus far in the business cycle.

Second, real, disposable consumer income (what is left after taxes and inflation) is rising at a solid pace as jobs growth continues apace, and as the tax cuts began to boost after tax income in January

Third, the stock market is in the midst of a correction but it is only about 8%  below its record high level.  That is an indicator of investor sentiment.  A rising stock market also boosts consumer net worth.  With corporations destined to benefits from tax cuts this year, interest rates still low, and the consumer spending at a solid 2.5% pace, corporate earnings should continue to rise.  We anticipate a 10% increase in earnings in 2018 which should put the stock market at an even higher record level by yearend.

Fourth 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.

And, finally, consumers have paid down tons of debt and are now in a position to spend.  Jobs are climbing at a pace of 208 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