Once again the headlines from Washington paint a picture of a consumer that is spending like we are in a recovery. A closer look at the components suggests a slightly different picture.
The bottom line form the Advance Retail Sales data today is that inflation is driving a higher level of sales but not an increased level of consumption. As reported by the commerce department today (seasonally-adjusted and before inflation adjustments), retail sales were 0.42% in August; July was revised downward to +0.28%.
In total, roughly 87%of the reported 0.42% gain was attributable to rising seasonally-adjusted food and energy prices, as seen in the improvement in sales at grocery stores and gasoline stations. Net of inflation, August real sales were likely flat versus the downwardly revised July estimate of 0.28%. Net of inflation and without the seasonal adjustment (the Washington fudge factor), August retail sales were most likely flat-to-down for the month of August.
The commerce department is reporting contractions in Vehicles & Parts, Furniture (home), Electronic stores and the miscellaneous categories. This is consistent with non-government (and, in our view, more objective) data from Consumer Metrics which suggest a much more sever contraction in consumer spending.
On a year-over-year basis, August 2010 retail sales were reported up by 3.5% from August 2009, versus a revised annual July gain of 5.4% (previously 5.5%). The slowing year-over-year trends reflect the lack of government support in the economy (i.e. last year’s cash-for-clunkers stimulus benefits). Going forward, it will be interesting to see if the monthly seasonal factors that are accounted for in the retail sales are adjusted to mask the underlying consumer trends.
The Clothing and General Merchandise categories benefited from the back-to-school shopping season and consumers taking advantage of the sales tax holidays in more than a dozen states.
When the smoke is cleared, it is clear that there is no real sequential improvement in retail sales and, in fact, things are slowing on a month-over-month and a year-over-year basis.
Howard Penney
Managing Director
