Tuesday, 22 of January of 2019

Economics. Explained.  

Category » Retail Sales

Retail Sales

December 14, 2018

Retail sales rose 0.2% in November after having jumped 1.1%  in October.  Over the  past year retail sales have risen a solid 4.2%.

Sometimes sales can be distorted by changes in autos and gasoline which tend to be quite volatile.  In this particular instance car sales rose 0.2% in November.  Gasoline sales declined 2.3%.  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 rose 0.5% in November after having risen 0.7% in October.   In the last year retail sales excluding cars and gasoline have risen a solid 4.5%.

While there has been a lot of disappointment about earnings in the traditional brick and mortar establishments  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 3.6% in the past year, on-line sales have risen 11.7%.  As a result, their share of total sales has been rising steadily and now stands at a record 11.7% of all retail sales.

We believe that retail sales will continue to chug along at a 2.6% pace for some time to come.   First, all measures of consumer confidence are at their highest levels in a decade despite the stock market selloff.

As long as the economy continues to crank out 190 thousand jobs a month, consumer income will continue to climb.

Real disposable income is currently climbing at a solid 2.8% pace which is roughly in line with 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 rise 2.8% in 2019 after having climbed 3.1% this year.

Stephen Slifer


Charleston, SC

Car and Truck Sales

December 5, 2018

Unit car and truck sales fell 0.4% in November to a 17.9 million pace in November after having risen 0.3% in October.  A 17.9 million pace is virtually identical to what 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 could 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.  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.

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, 2.8% GDP growth in 2019,  and car sales to remain healthy.

Somehow there seems to be a perception that car sales are “weak”.  That does not seem to be an accurate representation.  We would characterize them as “steady” at a relatively fast pace.  This chatter about weakness seems to have followed G.M.’s announcement that it would lay off 15 thousand people.  But they are doing that because consumers are no longer buying basic sedans like they used to.  They want crossover’s, SUV’s and small trucks.  By closing some of their factories that produce sedans G.M. will free up cash to spend on driver-less cars and electric cars of the future.  It would be a mistake to characterize this announcement as an indication of weakness in car sales.

Stephen Slifer


Charleston, SC