Monday, 22 of April of 2019

Economics. Explained.  

Retail Sales

April 18, 2019

Retail sales jumped 1.6% in March after having fallen 0.2% in February.  The softness in sales late last year occurred at a time when the stock market declined 20% and there was a protracted government shutdown that began right round Christmas.  But the stock market has already recovered almost all of its fourth quarter loss.  The Fed said it is going to refrain from further rate hikes through the end of this year  And the protracted government shutdown is now over.  Hence, retail was in March clearly rebounded from these two events.  Over the  past year retail sales have risen 3.6%.

Sometimes sales can be distorted by changes in autos and gasoline which tend to be quite volatile.  In this particular instance car sales jumped 3.6% in March.  Gasoline sales rose by 3.5%.  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 1.8% in January, fell 0.7% in February and climbed 0.9% in March.    In the last year retail sales excluding cars and gasoline have risen a solid 3.7%.

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 1.9% in the past year, on-line sales have risen 11.6%.  As a result, their share of total sales has been rising steadily and now stands at a record 11.9% of all retail sales.

Despite the December and January weakness we believe that retail sales will rebound in the months ahead.  First, the stock market has recovered almost all of its fourth quarter decline.

Second, the economy continues to crank out 190 thousand jobs a month,  Those job gains will produce growth in income.

Third, real disposable income (what is left after paying taxes and adjusting for inflation) has been growing at a solid 3.0% pace.

Fourth, as the Fed tightened steadily for the past couple of years mortgage rates rose to 4.9%, but in the past couple of months as the Fed has pledged to refrain from any further rate increases at least until midyear and as inflation has remained in check, the 30-year mortgage rate has fallen to 4.0%.  That should bolster the housing market as we move into the spring.

Finally, 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 should rebound in the months ahead.  We continue to expect GDP growth to rise 2.6% in 2019 after having climbed 3.0% last year.

Stephen Slifer


Charleston, SC

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