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Friday, June 11, 2010 12:16 PM

Anemic Retail Sales; Strength of Consumer Recovery Overstated

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Economists never expect bad news. Once again they were surprised by weak economic reports, this time by poor retail sales. Bloomberg reports Retail Sales in U.S. Fall as Consumers Boost Savings

Sales at U.S. retailers unexpectedly dropped in May, signaling consumers boosted savings as employment slowed and stocks fell.

Purchases decreased 1.2 percent, the biggest drop since September 2009, following a 0.6 percent April gain that was larger than previously estimated, Commerce Department figures showed today in Washington. Demand plunged at building-material stores, reflecting the end of a government appliance rebate, and sales fell at auto dealers, in contrast to industry figures which showed a gain.

Companies reined in hiring last month, making it likely households will keep a lid on spending, which accounts for about 70 percent of the economy. Discounters Target Corp. and TJX Cos. were among merchants reporting gains in May sales, indicating households are looking for bargains to stretch out their paychecks.

“The strength of the consumer recovery was overstated,” said David Sloan, a senior economist at 4Cast Inc. whose forecast of a 0.7 percent decline was the lowest among economists surveyed. “I don’t think things are going into a nosedive. The economy is in recovery. The outlook is still moderately positive.”

Retail sales were projected to increase 0.2 percent, according to the median estimate of 76 economists in a Bloomberg survey. Forecasts ranged from a decline of 0.7 percent to a gain of 1 percent.

The decrease in demand wasn’t broad-based, with five of 13 major categories showing decreases last month, led by a 9.3 percent plunge at building-material stores.

The decrease at building-material stores followed an 8.4 percent jump in April and a gain in March that may have reflected a surge in appliance sales propelled by a provision of the government’s stimulus package last year that provided rebates for purchases of more energy-efficient products.

Purchases of automobiles dropped 1.7 percent last month, counter to industry figures. General Motors Co. and Ford Motor Co. posted U.S. sales increases in May that topped analysts’ estimates as higher consumer confidence and inexpensive gasoline spurred customers to buy more sport utility vehicles.

“We’re ramping up production to meet continued strong demand for all of our launch vehicles as well as other products,” Stephen Carlisle, vice president for U.S. sales at GM, said on a teleconference June 2.
No Pent-Up Auto Demand, No Pent-Up Housing Demand

Is there any pent-up auto demand left? I rather doubt it. Nonetheless GM is "ramping up production". I suspect by late summer they will be ramping down production.

Building materials plunged 9.3 percent right along with $8,000 expiring tax credits for homes. Gee, who might have figured that out? Since economists couldn't I guess no one could.

Housing is about to go into a nosedive, and that will without a doubt affect big ticket items like appliances.

Appliances had two things going for them: $8,000 home tax credits and rebates for energy efficient appliances. Both brought forward demand. Now what? More rebates and tax credits?

Sorry Keynesian clowns, mathematically this does not work.

Advance Monthly Retail Sales

Inquiring minds are digging into the May Advance Monthly Retail Sales Report for further details.

Month over Month Comparisons

Year Over Year Comparisons

Sales Far Weaker Than They Look

Retail sales were up huge year-over-year but that is vs. an extremely easy comparison. Even still, general merchandise sales are up less that 2%.

Retail Sales are far worse than they look because of methodology: "The advance estimates are based on a subsample of the Census Bureau's full retail and food services sample. A stratified random sampling method is used to select approximately 5,000 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms."

Many stores like Circuit City went out of business. Other chains closed weak stores. This distorted sales reports. Best Buy probably benefited from closure of Circuit City for example. Moreover, some of those sales from closed stores vanished permanently.

The true measure of retail sales is tax collections, and those tax collections have been miserable and are about to take a turn for the worse.

Mike "Mish" Shedlock
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