Advance retail sales were lower than anticipated in August, falling 0.3%, following a rise of 0.1% in July, and expectations for a 0.1% decrease. Sales are now 1.9% higher than a year ago. Excluding autos, sales were also weaker, falling by 0.1%, after a 0.4% decline in July. Sales for this category are now up 2.0% from one year ago. Motor vehicle and parts sales decreased by 0.9%, after a rise of 1.7%; they are now 1.4% higher than a year ago.
The most meaningful measure of retail sales activity excludes gasoline and auto sales (to negate the volatile influences of gasoline prices and auto financing incentives). Sales at gasoline stations decreased by 0.8%, following a 2.6% fall in July, and are 9.5% lower than a year ago. The weakness in core sales was mainly focused at miscellaneous stores (-2.4%), stores for building materials and gardening equipment (-1.4%), sporting goods, hobby, book, and music stores (-1.4%), furniture and home furnishings (-0.7%), and nonstore retailers (-0.3%). Any strength in the month came from increases at food services and drinking places, clothing and accessories stores, and food and beverage stores. Excluding gasoline and autos, retail sales were 0.1% lower on the month, following a similar decline in July, and were 3.4% higher than a year ago. Lastly, non-auto, non-gasoline station sales, less building and gardening equipment, were 0.1% higher in the month and 3.5% higher annually.
There is little doubt that consumer spending has been patchy and weaker than most had anticipated given the fall in energy prices and the stronger employment data over the last few quarters. However, we continue to see support coming from those same areas, i.e., an ever-tighter labour market, moderate wage inflation, rising consumer confidence (where, importantly, consumers’ expectations are now also starting to improve having been in steady decline for over a year now), stronger balance sheets, and continued lower energy prices. And lastly, the still slow-but-steady improvement in the housing market should continue to bring with it gains in those housing-related areas. However, weakness continues to be in those areas with significant headwinds to pricing, such as food, apparel, and gasoline stations, in addition to continued weakness at the electronics and appliances stores. Consumers’ spending behaviour has overall been choppy in part to due to ongoing caution and the need to increase savings in a low-interest-rate world. However, it is also the case that debt growth is much slower than has been the case in the past (currently running at 2.7% annually, compared to the historical average of 8.5%). Implicitly, this would mean consumers are pulling forward less demand from the future (not such a bad thing!), but it would also mean less income smoothing is taking place, which is perhaps also why sales activity has been a little choppier.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.