Thursday, 15 of November of 2018

Economics. Explained.  

Category » Retail Sales

Retail Sales

October 15, 2018

Retail sales rose 0.1% in both August and September after having risen 0.6% in July.  However, Hurricane Florence blasted the North Carolina coast and parts of South Carolina in that month.  It is not too surprising that sales got dinged.  In October we will have some rebound from Hurricane Florence, but then Hurricane Michael slammed the Florida panhandle.  While these weather events can subdue sales in the months they occur, they do not change the longer-run picture.  As nearly as we can tell, sales still seem solid but it will take us several more months to get a clean read on the true pace of sales.  Over the  past year retail sales have risen 4.7%.

Sometimes sales can be distorted by changes in autos and gasoline which tend to be quite volatile.  In this particular instance car sales rose 0.8% in September, but gasoline sales fell 0.8%.  Changes in gas prices  impact the overall change in sales, but they typically do not reflect any significant change 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 were unchanged in September after having risen 0.1% in August and having jumped 0.8% in July.   In the last year retail sales excluding cars and gasoline have risen a solid 5.0%.

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 3.4% in the past year, on-line sales have risen 10.8%.  As a result, their share of total sales has been rising steadily and now stands at a record 11.4% 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, all measures of consumer confidence are at their highest levels in a decade.

One of the reasons consumers are feeling so positive is that the stock market is still near a record high.  That increase in stock prices boosts consumer net worth.  Given that the economic fundamentals seem so solid, we conclude that the early October drop-off reflects nothing more than normal stock market gyrations rather than being an earlier indicator of slower growth ahead.

As long as the economy continues to crank out 200 thousand jobs a month, consumer income will continue to climb.

Real disposable income is currently climbing at a solid 2.9% pace which is somewhat higher than its 25-year average growth of 2.7%.

If the Fed keeps raising rates very slowly consumers will be able to continue to borrow at a reasonable rate.  At 4.9% mortgage rates are well below the 6.25% average over the past 25 years.

In addition, 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 3.1% this year.

Stephen Slifer


Charleston, SC

Car and Truck Sales

October 2, 2018

Unit car and truck sales jumped 4.5% in September to 17.4 million units after having declined 0.6% in August.  A 17.4 million pace is 4.0% lower than  it was at this time last year.  Car sales have leveled off in the past year or so and auto industry experts think this  modest pace will continue for the rest of this year.  They talk about the fact that the period of ultra-low interest rates has ended.  The Fed is raising short-term interest rates and is expected to boost rates one more time later this year.  They talk about how automobile quality has improved so that consumers are holding onto their vehicles for longer periods of time.  And now they talk about higher prices for gasoline which could dampen growth.  All of those are fair points.  However, we expect car sales to continue to climb slowly 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.

Third, the S&P 500 index,  the Russell 2000 and the NASDAQ are all close to record high levels.  That is an indicator of investor sentiment.  In addition, a rising stock market also boosts consumer net worth.  With corporations benefiting 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.  If home sales seem pretty solid it would be surprising if car sales did not follow suit.

Finally, keep in mind that consumers have paid down tons of debt and are now in a position to spend.  Jobs are climbing at a pace of 190 thousand per month.  The unemployment rate has fallen to a level that is far below the full employment mark.  For all of these reasons we look for  3.1% GDP growth in 2018 and car sales to remain healthy.

Stephen Slifer


Charleston, SC