August 1, 2012
U.S. retail sales were driven lower in June partly by cheaper gas
June marked the third straight month of decline. April recorded an equal-sized drop of 0.5% and May’s fall was 0.2%.
Prior to April, there had been 12 periods in a row of month-to-month increases.
On a year-over-year basis, June’s level of total retail sales was +3.8%. That’s okay, but not outstanding. It’s a far cry from the post-recession peak (so far) of +8.5% that was achieved in July of last year.
A benchmark figure for retail sales is +5.0% year over year. Given a “normal” inflation rate of 2.0%, consumers — who account for 70% of U.S. total output — will then be laying down a +3.0% base for overall GDP growth.
Retail numbers contain a fair amount of volatility. For that reason, analysts often looked at the “smoothed” results. The way the numbers are smoothed is to calculate three-month moving averages and place the answers in the latest (i.e., third) month.
On a smoothed basis, May’s total retail sales were +4.7% year over year. That makes them look better. Whether or not this is only a temporary reprieve will depend on July’s results.
Two factors are playing key roles in the sales downturn — consumer uncertainty and prices.
Concerns about the broader implications of the European debt crisis have cast a pall over expectations. The unemployment rate remains high at 8.2% and over the last couple of months has been below expectations. The number of net new positions created in June was only 80,000.
The run-up to the U.S. presidential election is also taking a toll on confidence.
Many business owners are worried about the extra costs that will arise from President Obama’s health care package, now that it has passed its Supreme Court challenge. Then again, Mitt Romney says he’ll repeal the legislation if elected to the White House in November.
There’s also uncertainty with respect to the Bush-era tax cuts. Will they stand after the beginning of next year for rich and poor alike (the Republican platform) or be repealed for income earners in the top echelon, the so-called 1% (the position of the Democrats)?
There have also been some pricing influences on retail sales, which are reported in “current” dollars. “Current” as opposed to “constant” means they have not been adjusted for inflation or, as has become important for some products, deflation.
On a year-over-year basis, gasoline stations (-1.8%) recorded the largest percentage drop among major sub-sectors. This will be explored further in a couple of paragraphs.
Other significant percentage declines were recorded by building material and garden equipment dealers (-1.6%) and sporting goods, hobby, book and music stores (-1.6%).
Furniture and home furnishing stores (-0.8%) and electronics and appliance stores (also -0.8%) also had a rocky month.
A comparison of percentage changes is revealing, but where it falls short is in the weighting. It doesn’t capture the relative importance of the various categories.
For example, the dollar drop in total retail sales of $1.9 billion was largely due to a $795 million decline in sales at gasoline stations. In other words, 41% of the total-dollar retail-sales fall came at the pump.
The second and third most significant contributors to the overall retail sales decline were motor vehicles and parts dealers and building material and garden equipment suppliers (each accounting for about one-fifth).
There was one category of retail sales that achieved a substantial increase between May and June. Non-store retailers recorded increases of 0.5% month to month and 10.9% year over year.
The double-digit percentage gain year over year considerably outpaced all the other major sub-categories.
While the category “non-store retailers” sounds like an afterthought, it has become far more important than that, with a share that’s risen to nearly 9% of the total.
This is where the trendsetters of the future reside. Merchants in this category sell their wares over the Internet or through catalogue distribution.
A key selling feature is the ease of comparison shopping — important at any time, but doubly so when consumers feel under siege.
It’s also where costs can be most easily constrained, both for sellers and buyers.
The latter don’t have to provide fancy sales facilities — or even bare-bones facilities, for that matter. Nor are their staffing needs as great as for traditional “brick and mortar” locations.
For shoppers, they can make their purchase decisions with a click of the mouse, never even having to leave their homes.