Monday, 24 of September of 2018

Economics. Explained.  

Category » Retail Sales

Retail Sales

September 14, 2018

Retail sales rose 0.1% in August after having risen 0.7% in July.  The trend rate seems to be edging upwards.  In the past year sales (the blue line) have risen 6.7% which is the fastest 12-month growth rate since February 2012.

Sometimes sales can be distorted by changes in autos and gasoline which tend to be quite volatile.  In this particular instance car sales declined 0.8% in August, but gasoline sales jumped 1.7%.  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 0.2% in August after having jumped 0.9% in July.   In the last year retail sales excluding cars and gasoline have risen a solid 5.8% and are showing no signs of abating.

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 3.6% in the past year, on-line sales have risen 10.4%.  As a result, their share of total sales has been rising steadily and now stands at a record 11.3% 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 at a record high.  That increase in stock prices boosts consumer net worth.

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 4.5% mortgage rates are well below the 6.25% average over the past 25 years.

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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

NumberNomics

Charleston, SC


Car and Truck Sales

September 11, 2018

Unit car and truck sales fell 0.6% in August to 16.6 million units after having fallen 3.1% in July.  A 16.6 million pace is 0.9% higher 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 two more times 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 at record high levels.  That is an indicator of investor sentiment.  In addition, 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.  If home sales seem pretty solid it would be surprising if car sales did not follow suit.

It is true that gasoline prices have risen, but the Energy Information Institute believes that gasoline prices peaked at about $2.95 per gallon at the end of June and should decline slowly in the second half of the year.

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.  Consumers are benefiting from stable and still low gasoline prices. For all of these reasons we look for  3.1% GDP growth in 2018 and car sales to remain healthy.

Stephen Slifer

NumberNomics

Charleston, SC