Wednesday, 15 of August of 2018

Economics. Explained.  

Retail Sales

July 16, 2018

Retail sales rose 0.5% in June after having surged 1.3% in May.  The trend rate seems to be edging upwards.  In the past year sales have risen 6.5% which is the fastest 12-month growth rate since February 2012.

Sometimes sales can be distorted by changes in autos which tend to be quite volatile.  In this particular instance car sales rose 0.9% in June.

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 1.0% in June.  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 June after having jumped 1.3% in May.   In the last year retail sales excluding cars and gasoline have risen a solid 5.5% 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 2.5% in the past year, on-line sales have risen 10.2%.  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 sale.  Car sales are reasonably 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, after having experienced a correction earlier this year the stock market is only about 2% below its record high.  That increase in stock prices boosts consumer net worth.

Third, all measures of consumer confidence are close to their highest levels in a decade.

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

Finally, the economy is cranking out 190 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 2.6% last year to 3.0% this year.

Stephen Slifer


Charleston, SC

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