Friday, 14 of December of 2018

Economics. Explained.  

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

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