October Retail Sales
Updated 19-Nov-09 19:27 ET
Highlights
- Retail sales posted a much higher-than-expected 1.4% increase in October. The consensus forecasted sales to only increase 0.9%.
- The jump in total sales was almost completely due to consumers reentering the automobile buying market after September's pullback. Most economists predicted that it would be months before auto dealers saw strong growth as the Cash for Clunkers stimulus package brought customers into dealer lots at a record pace in August. Fortunately for the dealers, the stimulus package did not entice all of the would-be buyers as sales rose 8.3%.
- Excluding auto sales, total sales only increased 0.2%.
- The reason for the lower growth rate of total sales excluding autos was that building materials dealers saw a decline in sales of 2.4%.
- The biggest gain excluding auto sales were food service and drink places, which saw sales increase 1.2% in October.
- As expected, consumers continued to hold off on furniture, electronics, and sports and hobby store purchases ahead of the holiday season. Reports have been coming in of strong discounts between Thanksgiving and Christmas that will make it more desirable to forego purchases today.
Key Factors
- However, the 0.2% growth rate is misleading. Core retail sales (sales excluding auto dealers, building materials and garden dealers and gasoline stations) posted a very strong 0.5% monthly growth rate.
- Core sales provides a very good forecasting indicator on where total sales are headed in the near future. Strong growth of core sales in October bodes well for a greater-than-expected November and December holiday season.
- Building materials sales are highly volatile and continue to be strongly correlated with the overall housing market. The drop in sales is not a referendum on how the consumer is feeling about typical retail purchases but is because the consumer does not appear to believe the housing market is stabilizing. There is little reason for a consumer to spend money to fix up their house when the value of the home is less than what they paid for it.
- Eating out is considered an unnecessary luxury during times of financial stress and seeing the consumer return to these establishments brings hope that they are more willing to open their wallets and spend money before income growth returns to its previous state.
Big Picture
- Retail sales fell off dramatically starting in September 2008. That was when the financial markets fell apart and the news became apocalyptic. Auto sales rebounded due to the Cash for Clunkers stimulus plan, but is expected to remain depressed over the next several months. Retail sales are likely to remain weak for quite a while given the current trends in employment, and the negative wealth impact for depressed prices for homes and stocks.
| Category |
OCT |
SEP |
AUG |
JUL |
JUN |
| Retail Sales |
1.4% |
-2.3% |
2.2% |
0.2% |
0.8% |
| Excluding Autos |
0.2% |
0.4% |
1.0% |
-0.5% |
0.5% |
| Durable goods |
|
|
|
|
|
| Building Materials |
-2.4% |
-0.6% |
-1.2% |
-1.8% |
-0.6% |
| Autos/parts |
7.4% |
-14.3% |
7.8% |
1.5% |
1.9% |
| Furniture |
-0.8% |
0.8% |
-0.8% |
-0.9% |
0.0% |
| Nondurable goods |
|
|
|
|
|
| General Merchandise |
0.8% |
0.3% |
1.2% |
-0.3% |
-0.6% |
| Food |
0.1% |
0.6% |
0.8% |
-0.3% |
0.2% |
| Gasoline stations |
0.0% |
0.9% |
4.7% |
-1.5% |
6.3% |
| Clothing |
0.4% |
0.6% |
1.1% |
0.2% |
-1.5% |
| e*retailing/non-store |
1.0% |
0.1% |
0.1% |
0.0% |
1.5% |
