Retail Sales were better than expected in October, and the numbers for September were revised higher. Total retail sales rose 1.2%, much better than the 0.7% consensus expectation, and are up 7.3% from a year ago. September was revised up from 0.6% growth to 0.7% growth, which makes the overall level of retail sales much better than the consensus was expecting.
The Retail Sales report covers far more than just the shopping malls, and is a very broad based measure of consumer spending. Since consumer spending makes up 71% of the economy, it is a very important number.
That overstates things a bit, since retail sales are mostly about the sale of goods, not services -- and services make up two thirds of what consumers spend. Still, it is a pretty important thing to watch.
Auto Sales Up (Easy Comp)
Auto sales were a major help on overall retail sales in October, rising 5.7% on the month, and that after rising 1.7% in September. On a year-over-year basis they were up 14.7%. Considering that August 2009 was the heart of the Cash for Clunkers program, the year-over-year increase in sales of autos and parts is mostly due to easy comparisons, as auto sales crashed after the program finished.
Excluding autos, retail sales rose 0.4%, down from a 0.5% rise in September. Year-over-year sales are up 6.0%. This report significantly undercuts the “economy is falling into a double-dip recession” theme.
Box Score: Winning 9-4
The strength was broadly based. The report tracks 13 major categories of stores, of which nine were up and only four down on the month. Year over year, all types of stores are showing increases, ranging from 2.0% (grocery stores) to 14.7% for the Auto dealers.
Excluding the car dealers, the highest year-over-year growth (13.5%) was in the non-store retailers, the category that includes the online retailers like Amazon (AMZN).
One has to remember that while the numbers are adjusted for things like the number of selling days in the month, they are not adjusted for prices, and thus give more of a picture of what is happening with nominal GDP than real GDP.
The lack of adjustment for price changes means that sometimes increases really are not good news -- most notably in the case of gas stations. Their sales rose just 0.8% on the month, but are up 12.2% from a year ago. The increase in October was well below the increase of 1.2% in September and a 1.3% rise in August, but also comes on top of them. Clearly that is mostly a function of higher gasoline prices than it is a sudden surge in the consumption 44 oz fountain soft drinks and hot dogs off the rollers. In recent weeks the price of oil has rallied, and so we will probably see gas station sales rise again sharply in the November report.
Where Retail Is Slowing
Grocery store sales are slow, indicating that while prices might be up at the gas station, they are relatively tame at the grocery store; either that, or all of a sudden everyone went on a diet. They rose just 0.1% in October, the same as the rise in September. Relative to last year sales are up 1.9%.
Food price inflation has not been considered a big long-term problem, at least looking back over the last year. The recent surge in the price of wheat due to the drought in Russia and the floods in Pakistan may have played a role in a big August rise in sales, but that seems to have faded and not had much follow through.
Drug stores like Walgreen's (WAG) also had a pretty slow month with sales down 0.1% after a 0.4% rise in September, and are up 3.4% year over year.
Discretionary: Mixed
The more discretionary types of stores were a mixed bag. Sales at furniture stores fell by 0.7%, after rising 0.2% in September. They are up 2.9% year over year. Sales at electronics and appliance stores such as Best Buy (BBY) also dropped 0.7% a big slow down from the 1.4% increase in September, and are up 3.6% year over year.
On the other hand, sporting goods and hobby stores saw relatively strong sales, with growth of 1.0% on top of 0.9% growth in September and up 6.7% year over year. Autos, appliances, furniture and sporting goods are all areas where consumers can very easily put off buying if they are worried about the future.
The mixed bag of results for the month in these discretionary categories is thus giving no clear signal about the overall tone of the economy. While the year-over-year increase in sales at the auto dealers can be discounted due to the end of the Cash for Clunkers program a year ago, that was a bigger factor last month than this one. A 5.7% month-to-month increase is encouraging, even if the overall level of sales is still quite depressed.
Sales in the Building Materials and Garden Center stores like Home Depot (HD) were up 1.9% on the month after rising 1.3% in August and are up 12.2% from a year ago. Given how weak the construction industry has been, up 12.2 from a year ago is a very strong showing, but then again, a year ago things were pretty depressed. It may also be that people are spending more to spruce up their existing place than moving into new homes.
The one discretionary area that did show some rebound was in clothing stores like The Gap (GPS) where sales were up 0.7% after falling 0.4% in August, and are up 3.5% from a year ago. A new pair of jeans is a bit less discretionary than a new kitchen table, but more discretionary than going to the grocery store.
Going out to eat and drink is also a very discretionary item, and sales at bars and restaurants were up 0.3%, up from unchanged in September and are up 4.3% year over year.
Encouraging Report
Overall this is an encouraging report, even if most of the positive surprise just came from the auto dealers, and the strength was a bit less broad based than last month. It shows that despite what we have seen in the consumer confidence surveys, that consumers are actually acting much more confidently, and are starting to buy some of the big-ticket discretionary type items.
That is one of the reasons that the consumer confidence numbers are probably the most overrated economic indicators around. You have to look at what consumers do, not what they say, and the two are often different. It is actual sales that count, not what consumers say they are going to spend on.
This report suggests that consumer spending will be a nice contributor to GDP growth in the fourth quarter. We will need that help given the likely drag from lower residential investment, slowing government stimulus (including cut backs at the state and local level). Of course, this is just one of three months -- and by far the least important of the three for the quarter.
AMAZON.COM INC (AMZN): Free Stock Analysis Report
BEST BUY (BBY): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
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That overstates things a bit, since retail sales are mostly about the sale of goods, not services -- and services make up two thirds of what consumers spend. Still, it is a pretty important thing to watch.
Auto Sales Up (Easy Comp)
Auto sales were a major help on overall retail sales in October, rising 5.7% on the month, and that after rising 1.7% in September. On a year-over-year basis they were up 14.7%. Considering that August 2009 was the heart of the Cash for Clunkers program, the year-over-year increase in sales of autos and parts is mostly due to easy comparisons, as auto sales crashed after the program finished.
Excluding autos, retail sales rose 0.4%, down from a 0.5% rise in September. Year-over-year sales are up 6.0%. This report significantly undercuts the “economy is falling into a double-dip recession” theme.
Box Score: Winning 9-4
The strength was broadly based. The report tracks 13 major categories of stores, of which nine were up and only four down on the month. Year over year, all types of stores are showing increases, ranging from 2.0% (grocery stores) to 14.7% for the Auto dealers.
Excluding the car dealers, the highest year-over-year growth (13.5%) was in the non-store retailers, the category that includes the online retailers like Amazon (AMZN).
One has to remember that while the numbers are adjusted for things like the number of selling days in the month, they are not adjusted for prices, and thus give more of a picture of what is happening with nominal GDP than real GDP.
The lack of adjustment for price changes means that sometimes increases really are not good news -- most notably in the case of gas stations. Their sales rose just 0.8% on the month, but are up 12.2% from a year ago. The increase in October was well below the increase of 1.2% in September and a 1.3% rise in August, but also comes on top of them. Clearly that is mostly a function of higher gasoline prices than it is a sudden surge in the consumption 44 oz fountain soft drinks and hot dogs off the rollers. In recent weeks the price of oil has rallied, and so we will probably see gas station sales rise again sharply in the November report.
Where Retail Is Slowing
Grocery store sales are slow, indicating that while prices might be up at the gas station, they are relatively tame at the grocery store; either that, or all of a sudden everyone went on a diet. They rose just 0.1% in October, the same as the rise in September. Relative to last year sales are up 1.9%.
Food price inflation has not been considered a big long-term problem, at least looking back over the last year. The recent surge in the price of wheat due to the drought in Russia and the floods in Pakistan may have played a role in a big August rise in sales, but that seems to have faded and not had much follow through.
Drug stores like Walgreen's (WAG) also had a pretty slow month with sales down 0.1% after a 0.4% rise in September, and are up 3.4% year over year.
Discretionary: Mixed
The more discretionary types of stores were a mixed bag. Sales at furniture stores fell by 0.7%, after rising 0.2% in September. They are up 2.9% year over year. Sales at electronics and appliance stores such as Best Buy (BBY) also dropped 0.7% a big slow down from the 1.4% increase in September, and are up 3.6% year over year.
On the other hand, sporting goods and hobby stores saw relatively strong sales, with growth of 1.0% on top of 0.9% growth in September and up 6.7% year over year. Autos, appliances, furniture and sporting goods are all areas where consumers can very easily put off buying if they are worried about the future.
The mixed bag of results for the month in these discretionary categories is thus giving no clear signal about the overall tone of the economy. While the year-over-year increase in sales at the auto dealers can be discounted due to the end of the Cash for Clunkers program a year ago, that was a bigger factor last month than this one. A 5.7% month-to-month increase is encouraging, even if the overall level of sales is still quite depressed.
Sales in the Building Materials and Garden Center stores like Home Depot (HD) were up 1.9% on the month after rising 1.3% in August and are up 12.2% from a year ago. Given how weak the construction industry has been, up 12.2 from a year ago is a very strong showing, but then again, a year ago things were pretty depressed. It may also be that people are spending more to spruce up their existing place than moving into new homes.
The one discretionary area that did show some rebound was in clothing stores like The Gap (GPS) where sales were up 0.7% after falling 0.4% in August, and are up 3.5% from a year ago. A new pair of jeans is a bit less discretionary than a new kitchen table, but more discretionary than going to the grocery store.
Going out to eat and drink is also a very discretionary item, and sales at bars and restaurants were up 0.3%, up from unchanged in September and are up 4.3% year over year.
Encouraging Report
Overall this is an encouraging report, even if most of the positive surprise just came from the auto dealers, and the strength was a bit less broad based than last month. It shows that despite what we have seen in the consumer confidence surveys, that consumers are actually acting much more confidently, and are starting to buy some of the big-ticket discretionary type items.
That is one of the reasons that the consumer confidence numbers are probably the most overrated economic indicators around. You have to look at what consumers do, not what they say, and the two are often different. It is actual sales that count, not what consumers say they are going to spend on.
This report suggests that consumer spending will be a nice contributor to GDP growth in the fourth quarter. We will need that help given the likely drag from lower residential investment, slowing government stimulus (including cut backs at the state and local level). Of course, this is just one of three months -- and by far the least important of the three for the quarter.
AMAZON.COM INC (AMZN): Free Stock Analysis Report
BEST BUY (BBY): Free Stock Analysis Report
GAP INC (GPS): Free Stock Analysis Report
HOME DEPOT (HD): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
Zacks Investment Research
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