Surprise! Surprise? Retail Sales Demise

Was anybody really surprised to learn that retail sales stalled in August? Apparently economists were, given their consensus forecast for growth of 0.2%, based on Bloomberg’s survey. Census Bureau data reported Wednesday showed retail sales actually stuck around the same mark set in July. Considering the damage DC and S&P brought to the stock market and consumer confidence through the summer, there should be no surprise about August retail sales dribble. The job now ahead of our government is how to restore confidence before an economic death spiral gains momentum.

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Surprise! Surprise? Retail Sales Demise

Back to school or back to broke? The back to school shopping season tends to heat ahead of Labor Day, but this data is adjusted for seasonal variation, and so should not be seen as worse for it. And how bad is it really? On a year-over-year basis, sales were 7.2% higher. Even after adjusting for inflation, that’s not shabby growth. However, gasoline station sales increased 20.8% on a year-over-year basis, thus reflecting the rise in gasoline prices through the period. This leads one to wonder if gas padded the numbers. However, if we measure retail health excluding gasoline, it still doesn’t look that bad. Most of the categories listed in the report show better than inflation rates of growth on an annual basis. That said, and like I’ve often stated in the past, we slow before we stop and we stop before we reverse course.

The month-to-month 0.0% growth rate proved harder to digest because July’s growth was revised downward to +0.3%, from the initially reported 0.5% rise. The July data was reassuring to investors when reported, so this is like a rug has been pulled out from under us. Still, the stock market was higher through early afternoon trading Wednesday on the appeasement of investors by an Italian vote of confidence for its government and on the reassurances of Angela Merkel and other European leaders regarding a feared Greek default.

Surprising motor vehicle sales weakness cost the overall growth performance, as the rate excluding auto sales was a better +0.1%. Motor vehicle and parts dealers’ sales were reported down by 0.3% through the month. This was consistent with data reported at the start of September, with domestic auto sales estimated running at a 9.4 million annual rate, down from 9.5 million in July. Total auto sales were down to a rate of 12.1 million, from 12.2 million in July.

Significant softness was also seen in apparel sales (clothing & clothing accessories), which was reported down 0.7% month-to-month. And the August drop was preceded by a decline of 0.3% in July. Clothing is perhaps one of the more discretionary spends made by consumers. Department stores did especially poorly, with those sales down 0.3% month-to-month. That news has not hurt the stocks of the big boxes today, with shares of J.C. Penney (NYSE: JCP) up 4.1%, Macy’s (NYSE: M) up 2.8%, Kohl’s (NYSE: KSS) up 2.2% and Nordstrom up 0.3% at the hour of publishing here. Grocery store sales, an area of necessity, rose 0.5%; though food sales, like gasoline, may reflect rising pricing as well (Kroger NYSE: KR up 0.3%). Spending at restaurants and bars (food services and drinking places), which are certainly discretionary for most of us, declined by 0.3% in August; and that followed the 0.4% decline in July. Shares of Brinker International (NYSE: EAT) and Darden Restaurants (NYSE: DRI) are up 5.3% and 2.4%, respectively, nonetheless. This discretionary spending drop-off should make DC and S&P feel a little guilty, if either has a conscience, but it looks like investors in these companies expected worse news today.

Nonstore retailers, which is basically online business now (once dominated by catalog), saw a sales increase of 0.5% in August and a strong 10.4% increase year-over-year. This continues to be a market share story, as the web keeps grabbing business from the street. Perhaps a sign of renewing decline in housing, furniture and home furnishing stores saw a sales drop of 0.2% in August, and have only modest growth of 0.2% to report on a yearly basis.

Sporting goods and other hobby stores posted strong growth of 2.4% in August, and I continue to believe this is due to a little understood phenomenon among the tally takers. Heading into the school year, student athletes and musicians must restock on equipment and supplies for their game and music playing efforts. It’s my view that the seasonal adjustment has not been accounted for here, as I recall this happening in years past as well.

In conclusion, the decline in August, following a moderated growth rate in July, can be directly attributed to Washington D.C. and to Standard & Poor’s in my opinion. The two perhaps equally responsible entities managed to scare the consumer, both employed and unemployed, into their bunkers. The capital destruction that occurred in the stock market on dire debt ceiling debate and the prospective economic collapse threatened by a downgraded sovereignty kept Americans focused on preservation of capital, and perhaps food as well. Hopefully, American confidence can be restored as quickly as it was damaged, but it appears a self-feeding down spiral is more likely.

Article interests investors in: S&P Retail ETF (NYSE: XRT), Wal-Mart (NYSE: WMT), Pier 1 Imports (NYSE: PIR), Ethan Allen (NYSE: ETH), Hooker Furniture (Nasdaq: HOFT), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Apple (Nasdaq: AAPL), Best Buy (NYSE: BBY), The Limited (NYSE: LTD), Chicos (NYSE: CHS), Ann Taylor (NYSE: ANN), The Gap (NYSE: GPS), Macy’s (NYSE: M), JC Penney (NYSE: JCP), Nordstrom (NYSE: JWN), TJX Company (NYSE: TJX), Kohls (NYSE: KSS), Costco (Nasdaq: COST), Target (NYSE: TGT), Wet Seal (Nasdaq: WTSLA), Hot Topic (Nasdaq: HOTT), American Eagle Outfitters (NYSE: AEO), Aeropostale (NYSE: ARO), Abercrombie & Fitch (NYSE: ANF), Saks (NYSE: SAK), Tiffany (NYSE: TIF), Talbots (NYSE: TLB), Lumber Liquidators (NYSE: LL), Builders Firstsource (Nasdaq: BLDR), Fortune Brands (NYSE: FO), Leggett & Platt (NYSE: LEG), Tempur-Pedic International (NYSE: TPX), Acuity Brands (NYSE: AYI), La-Z-Boy (NYSE: LZB), Select Comfort (Nasdaq: SCSS), Sleepy’s (NYSE: ZZ), Furniture Brands (NYSE: FBN), Natuzzi (NYSE: NTZ), Sears (Nasdaq: SHLD), Dillard’s (NYSE: DDS), Bon-Ton (Nasdaq: BONT), Cost Plus (Nasdaq: CPWM), Baker’s Footwear (Nasdaq: BKRS.OB), Bebe Stores (Nasdaq: BEBE), The Buckle (NYSE: BKE), Cache (Nasdaq: CACH), Casual Male (Nasdaq: CMRG), Cato (Nasdaq: CATO), Christopher & Banks (NYSE: CBK), Citi Trends (Nasdaq: CTRN), Collective Brands (NYSE: PSS), Destination Maternity (Nasdaq: DEST), Dress Barn (Nasdaq: DBRN), DSW (NYSE: DSW), Finish Line (Nasdaq: FINL), Footlocker (NYSE: FL), Gymboree (Nasdaq: GYMB), Guess (NYSE: GES), J. Crew (NYSE: JCG), Jones New York (NYSE: JNY), Jos. A Banks (Nasdaq: JOSB), New York & Co. (NYSE: NWY), Men’s Wearhouse (NYSE: MW), Syms (Nasdaq: SYMS), The Children’s Place (Nasdaq: PLCE).

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