Economic First Look: Dig Under the Retail-Sales Headline

 | Sep 07, 2013 | 10:00 AM EDT  | Comments
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Monday

  • John Williams, president of the San Francisco Fed (non-voter), speaks, 11 a.m. EDT
  • Consumer Credit, 3 p.m.

Tuesday

  • National Federation of Independent Business (NFIB) Small Business Optimism Index, 7:30 a.m.
  • JOLTS report (Job Openings and Labor Turnover Survey), 10 a.m.

Wednesday

  • Energy Information Administration (EIA) Petroleum Status Report, 10:30 a.m.

Thursday

  • Jobless Claims, 8:30 a.m.
  • Import and Export Prices, 8:30 a.m.
  • Treasury Budget, 2 p.m.

Friday

  • Producer Price Index, 8:30 a.m.
  • Retail Sales, 8:30 a.m.
  • Consumer Sentiment (University of Michigan measure), 9:55 a.m.
  • Business Inventories, 10 a.m.

This week is rather light on economic indicators, but Friday's producer price index and retail-sales report are the two major monthly indicators that will capture my attention.

But I am especially interested in how consumer spending is faring. We see in the latest jobs report that aggregate consumer wage and salary incomes increased by 0.6%, and individual workers have seen their weekly paychecks increase an average of 0.5% on the month. Will this have translated directly into retail sales?

A few thoughts relate to where consumers are spending their money. Auto sales have been strong, as the average age of cars on the road is at a record high. Strength in this area may continue, especially given replacement demand, and newly hired workers may now be able to afford that new car they need.

Edmunds.com, the car website, reported recently that the average age of cars and light trucks on the road in the U.S. has reached a record-high average of 11.4 years, according to Polk, an automotive research firm. The average vehicle age increased to 11.2 years from 9.6 years in 2012. The need to replace aging cars certainly does bode well for continued consumer spending on autos and parts, especially since many folks can now afford to do so.

Fittingly, automakers reported another month of double-digit increases in August: 1.5 million vehicles were sold, a 17% gain over the same month last year. That put the seasonally adjusted annual industry sales rate at a post-recession high of 16.09 million, up from 14.49 million a year earlier.

Consumers, moreover, are in a bit of a better mood than they have been. The Conference Board Consumer Confidence Index, which had declined in July, increased slightly in August. The Index now stands at 81.5, up from 81.0 in July. The Present Situation Index decreased to 70.7 from 73.6. But the Expectations Index increased to 88.7 from 86.0 last month, and this component of the survey is more correlated to the direction of consumer spending than is the headline or any of the other component metrics.

Drilling down more into consumers' expectations, we see that those expecting business conditions to improve over the next six months edged up to 20.1% from 19.9%. Those expecting business conditions to worsen declined slightly to 11.1% from 11.3%.

Consumers' outlook for the labor market remained upbeat. Those anticipating more jobs in the months ahead increased to 17.6% from 16.7%, while those anticipating fewer jobs edged down to 17.3% from 17.7%. The proportion of consumers expecting their incomes to increase improved to 17.4% from 15.7%. Those expecting a decrease declined slightly to 13.5% from 13.7%. Consumers' income expectations are the highest in two-and-a-half years, and this is supportive of more consumer spending -- if not now, then perhaps in coming months.

But as to data for August, the data on chain-store sales haven't been that strong. That comes amid tepid income gains in prior months, despite consumers' anticipation that may change.

"Overall, the month was mediocre for sales," said Michael P. Niemira, chief economist at the International Council of Shopping Centers, per the Associated Press. "The back-to-school season started late and it never had momentum."

Overall, revenue at stores open at least a year rose 3.6% in August, according to a tally of 10 retailers by the International Council of Shopping Centers. That's up a bit from July's 3.5% gain, but below the 6% gain in August last year.

Only a handful of retail chains report monthly sales figures. For example, Wal-Mart (WMT), Macy's (M) and many other large chains don't report monthly sales. In total, the retailers that report monthly data represent about 6% of the $2.4 trillion in U.S. retail industry sales. So it is hard to get an accurate sense, ex ante, what retail sales may be based just on these particular data for chain-store sales.

The National Retail Federation estimated that, this year, U.S. households are planning to spend an average of 7.8% less for back-to-school shopping. In another data point, store traffic has fallen in nine of the past 11 weeks. Still, the declines moderated in the week ended Aug. 31, according to ShopperTrak, which provides research on the retail industry.

The bottom line is that -- as consumers have only limited incomes -- after they spend money on a new car, less is left over to spend on the mall. For Friday's retail-sales report, be sure to look at the data not only for the headline, but also for the tally excluding auto sales. Strength in car sales may be offset by lackluster results in certain other categories.

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