Retail Sales Dropped in July

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Retail sales data disappointed this morning, perhaps taking some of the steam out of the nascent auto industry recovery. It is clear from this morning's data that while autos may be doing better, consumers are not feeling so well. That probably has a lot to do with increasing job loss and a little to do with "Cash for Clunkers."

Retail Sales Report

Retail Sales unexpectedly fell in July, declining 0.1% against the economists' consensus estimate for a 0.8% gain. July's mild decline also compared unfavorably with June's revised rise of 0.8%. So what happened then?

While a lift was reported from auto sales (+2.4%), with retail sales ex-auto down 0.6%, the driver was not powerful enough to overcome a 2.1% drop at gasoline stations, and decrease across a slew of previously suspected improving segments. Building Material & Garden Equipment Supplies sales fell 2.1%, and Furniture & Home Furnishing Stores saw a 0.9% decline, both data points contrasting against green shoots in housing data.

Electronics & Appliance Stores posted a 1.4% decline, while Sporting Goods, Hobby's, Book and Music Stores saw a 1.9% drop. General Merchandise fell 1.8% and Department Stores sank 1.6%. Aha! The picture is clearer now isn't it...

Market whispers that "Cash for Clunkers" was borrowing sparse consumer spending dollars from other retail segments may have proven accurate in this morning's data. Unemployed folks, a rising count when you ignore the lower labor force denominator, clearly are not spending like they would like. Perhaps we have funneled cash flow from the employed toward autos at the cost of other segments. So, net net, we may be aiding the already reorganized auto sector at the cost of a starving retail market elsewhere.

My greatest concern, therefore, is once again focused at commercial real estate. Cash and credit cushions at retailer coffers are running thin, and more stores are likely to close down as light spending persists. Real estate operators are going to have to give a little more or see rising vacancies, which seem likely anyway.


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