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September 22, 2011
August Retail Sales came in flat. This was not unexpected; I thought that they would be worse. What the popular press failed to mention was that this is up 7.2 percent versus August 2010.
But retail sales are slowing, as the chart below clearly illustrates, and this is cause for concern. Retail sales, excluding autos and gas, rose by 3.7 percent during the June, July, and August period. Contrast this to the 8.1 percent gain in the fourth quarter of 2010. So what happened?
I believe that many of the factors that impacted August retail sales were transitory in nature. These included severe storms in the Northeast; wild swings in stock prices; and drought conditions and flooding that impacted the agricultural sector. The biggest problem in August, however, in my view, was the total paralysis of the U.S. government during the debate over the federal borrowing limit. This government meltdown was driven home to all Americans by a downgrade in the AAA rating of the government’s debt. Thus, consumers were not in a shopping mood.
In support of my position that the multitude of the headwinds the economy faced in August were transitory, consider that many of the more structural factors that impacted consumer spending in August have been in place for awhile. These include: high unemployment; a weak housing market; and the hostile actions coming out of Washington aimed at the business community (i.e., an excessive regulatory environment, rising health care costs, and uncertainty regarding tax policy, among other things). This incomprehension of economic policy emanating from the capital was further driven home on Monday, when the president announced, among his many other nonsensical notions, that he wants to curb the amount of interest "high-income" taxpayers can deduct for municipal bonds, and limit deductions for charitable contributions.
So what does this have to do with retail sales? I believe that September retail sales will show a modest uptick as we move beyond these events. Consumer confidence was starting to improve in July, tanked in August and, as the The University of Michigan's Index of Consumer Sentiment for mid-September shows below, it has bounced back slightly higher.
|
Mid-Sept. |
Aug. |
July |
Sept. Y/Y |
2010 |
2009 |
2008 |
|
Consumer Sentiment |
57.8 |
55.7 |
63.7 |
-15.2% |
71.8 |
66.3 |
63.8 |
(Sources: UMICH, BEA/Haver)
Personal income rose in both June and July (up 5.3 percent versus July 2010). Assuming that the president can be reasonably contained, and that the EU does not implode, we can start to see a very modest improvement in retail sales and the economy in the fourth quarter.
In mid-October, we will release our outlook for holiday 2011 retail sales. The one thing I can state with confidence is that it won’t match last year’s 5.3 percent increase.
SKP
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