Retail Sales were better than expected in September, and the numbers for August were revised significantly higher. Total retail sales rose 0.6%, better than the 0.4% consensus expectation and are up 7.3% from a year ago. August was revised up from 0.4% growth to 0.7% growth, which makes the overall level of retail sales much better than the consensus was expecting.
The Retail Sales report covers far more than just the shopping malls and is a very broad based measure of consumer spending. Since consumer spending makes up 71% of the economy it is a very important number. That overstates things a bit since retail sales are mostly about the sale of goods, not services, and services make up two thirds of what consumers spend. Still, it is a pretty important thing to watch.
Auto sales were a major help on overall retail sales in September, rising 1.6% on the month, but that comes after falling 0.5% in August. On a year-over-year basis they were down up 17.9%. Considering that August 2009 was the heart of the Cash for Clunkers program, the year-over-year increase in sales of autos and parts is mostly due to easy comparisons, as auto sales crashed after the program finished.
Excluding autos retail sales rose 0.4%, down from a 1.0% rise in August. Year-over-year sales are up 5.4%. This report significantly undercuts the “economy is falling into a double-dip recession” theme.
Broad-Based Strength
The report tracks 13 major categories of stores, of which 11 were up and only one down on the month (a 0.2% decline in Clothing stores). Year over year, all types of stores are showing increases, ranging from 2.0% (sporting goods and hobby stores) to 17.9% for the Auto dealers.
Excluding the car dealers, the highest year over year growth was in the non-store retailers, the category that includes the on line retailers like Amazon (AMZN). One has to remember that while the numbers are adjusted for things like the number of selling days in the month, they are not adjusted for prices, and thus give more of a picture of what is happening with nominal GDP than real GDP.
The lack of adjustment for price changes means that sometimes slowdowns are good news — most notably in the case of gas stations. Their sales rose just 0.4% on the month, but are up 8.2% from a year ago. The increase in September was well below the increase of 1.3% in August and a 2.2% rise in July. Clearly that is mostly a function of higher gasoline prices than it is a sudden surge in the consumption 44 oz fountain soft drinks and hot dogs off the rollers. However, in recent weeks the price of oil has rallied, and so we will probably see gas station sales rise again sharply in the October report.
Grocery store sales also slowed, rising just 0.4% in September, down from a 1.8% rise in August. Relative to last year, sales are up 2.8%. In other words, Kroger’s (KR) might have had a slower month than in August, but it is not a relentless surge of people going on diets after turning into gluttons in August. Food price inflation has not big long-term problem, at least looking back over the last year. The recent surge in the price of wheat due to the drought in Russia and the floods in Pakistan may have played a role in the big August rise in sales.
Drug stores like Walgreen’s (WAG) also had a pretty solid month with sales up 0.5% after a 0.8% rise in August, and are up 3.8% year over year.
The more discretionary types of stores started to accelerate. Sales at furniture stores rose by 0.5%, up from a 0.3% increase in August. They are up 3.1% year over year. Sales at electronics and appliance stores such as Best Buy (BBY) rose 1.5% more than reversing a drop of 0.9% in August, and are up 5.6% year over year. It looks like the back to school surge in electronics came later than usual.
The strength on the appliance side is a bit surprising given the collapse in home sales, both new and used. On the other hand, sporting goods and hobby stores have seen relatively low sales, with growth of just 0.2% in each of the last two months and up just 2.0% year over year. Autos, appliances, furniture and sporting goods are all areas where consumers can very easily put off buying if they are worried about the future.
The pick-up in sales in these categories is thus encouraging. While the year-over-year increase in sales at the auto dealers can be discounted due to the end of the Cash for Clunkers program a year ago, there was not any comparable special factor going on in August, and a 1.6% month-to-month increase is encouraging (even if the overall level of sales is still quite depressed).
Sales in the Building Materials and Garden Center stores like Home Depot (HD) were up 0.6% on the month after rising 0.5% in August and are up 7.3% from a year ago. Given how weak the construction industry has been, up 7.3% from a year ago is a very solid showing, but then again, a year ago things were pretty depressed.
Where Was There Weakness?
The one discretionary area that did show some weakness was in clothing stores like The Gap (GPS) where sales were down 0.2% after rising 0.5% in August, and are up 3.2% from a year ago. A new pair of jeans is a bit less discretionary than a new kitchen table, but more discretionary than going to the grocery store.
Going out to eat and drink is also a very discretionary item, and sales at bars and restaurants were up 0.3%, down from a 1.0% increase in August and are up 4.5% year over year.
Very Encouraging
Overall this is a very encouraging report, particularly when one considers the upward revisions to last month’s numbers. It shows that despite what we have seen in the consumer confidence surveys, that consumers are actually acting much more confidently, and are starting to buy some of the big ticket discretionary type items.
That is one of the reasons that the consumer confidence numbers are probably the most overrated economic indicators around. You have to look at what consumers do, not what they say, and the two are often different. Yes, the University of Michigan consumer index was reported this morning, and it was a bit on the disappointing side, falling to 67.9 from 68.2 last month and below expectations of 68.5.
But so what? It is actual sales that count, not what consumers say they are going to spend, when what they actually spend turns out to be far different than what they say. This report suggests that consumer spending will be a nice contributor to GDP growth in the third quarter. We will need that help given the likely drag from lower residential investment, slowing government stimulus (including cutbacks at the state and local level) and a drag from net exports.
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