Monday, 24 of June of 2019

Economics. Explained.  

Retail Sales

June 14, 2019

Retail sales rose 0.5% in May after having risen 1.8% in April and 0.3% in March.  Sales in the previous two months were revised upwards by a total of 0.6%.  While relatively soft late last year and in the first two months of 2019, sales are coming on strong.  During the past year retail sales have risen a solid 3.0%. but in the past three months sales have been climbing at a 10.4% pace.

Sometimes sales can be distorted by changes in autos and gasoline which tend to be quite volatile.  In this particular instance car sales rose 0.7% in May.  Gasoline sales rose 0.3%.  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 May after having risen 0.3% in April and having surged 1.1% in March.   In the last year retail sales excluding cars and gasoline have risen a robust 3.0% while in the past three  months such sales have climbed at a 6.4% pace.

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 3.2% in the past year, on-line sales have risen 11.3%.  As a result, their share of total sales has been rising steadily and now stands at a record 12.0% of all retail sales.

We expect retail sales to climb slowly in the months ahead.  First, the stock market recovered all of its fourth quarter decline, recently established a record high level, and is currently only 2% below that new peak..

Second, the economy continues to crank out 170 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 respectable 2.3% 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 3.8%.  That should bolster both confidence and 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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