Retail Sales Report - of Dogs and Deserts

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The US Census Bureau, at the Department of Commerce, today reported Retail Sales for the month of April... and a tumbleweed blew by. The market received surprisingly bad news today, as sales contracted through the month. This countered the expert consensus forecast for an increase, and raised doubt about the willingness of consumers to spend while unemployment is still rising, home values declining and credit inaccessible.

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Retail Sales Report

Retail sales contracted 0.4% in April, following a revised lower 1.3% drop in March. Though we immediately want to attribute the weakness to the auto sector, the data absolves industry turmoil from blame. In fact, auto sales have moderated and improved from their panic-level lows of recent months. Excluding autos, sales actually fell at a greater rate than when including them in April. Ex-auto, retail sales fell by 0.5% in April, versus the revised lower 1.2% rate from March. This implies correctly that auto sales grew modestly (+0.2%).

The data most telling about the pace of retail sales and consumer spending decline, came in the year-over-year numbers. April 2009 sales were a dramatic 10.1% short of the prior year result. When reviewing this data, we want to keep in mind that while holiday and seasonal differentials are accounted for, price change is not. As you will recall, gasoline prices were much higher last year and played a significant role in the year-to-year change. Also, food prices have fallen significantly from last year's levels, due to overall commodity price adjustment from bubblistic highs.

Still, the month-to-month figures do not incorporate so much price change and highlight the true spending habits of consumers. April's retail sales report seems to contradict an article we wrote only yesterday. Within that piece, entitled "ICSC Weekly Same-Store Sales Turn Positive," we highlighted the last two weeks' positive year-over-year increases in same-store sales as "green shoots" or signs of economic stabilization. Today's retail sales report does not necessarily contradict that though. After all, it measures April, and the ICSC data is more recent. Also, the two reports test less than identical sample groups, but the Census Bureau data is more comprehensive.

Retail Sales Details

To better understand the message offered by the monthly report, we must inspect its details more closely. Monthly sales declines in electronics & appliances locales (-2.8%) and clothing & clothing accessories (-0.5%) stores seem to point toward a wary consumer. However, we must not forget the dramatic and near constant inventory reduction underway on the business level. That effort regularly involves price discounting, and so the price factor may skew the message here. Business Inventories were reported today down 1.0% for the month of March. Sales decreased at a faster rate though, which lends to the spending argument. Also, retailers do not discount unless they absolutely have to in order to move merchandise.

Also supporting the generally decreased consumer spending case is the 2.3% decline at gasoline stations. Retail level gasoline prices were stable to rising in April across the US, which we hope you can make out in this chart.

In Conclusion

It seems clear that rising unemployment is the most powerful factor driving consumer spending now. However obvious that may seem to you, we will make a case for the roles that other factors, including the psychological, have played in recent activity. The take-away here is that through April the many real factors still weighing against consumers, including the three outlined atop this article, are still weighing on our economy. Likewise, we expect the recent psychological boost experienced on improved economic clarity has worn thin.

Frequent Wall Street Greek commenter, "Uncle," may prove prescient in his criticism of my green shoots claim in our "ICSC" article. He suggested that two data points do not a trend make, and he is scientifically correct. That said, the worst seems to be over, with stabilization and even recovery apparently on the horizon. These days, we see the market valuing stocks and our economy based on a better than cataclysmic economic forecast. Finally, after months of fear driven extremes, we may estimate true value based on fundamental factors.


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