For those concerned about the state of the U.S. economy, the September retail sales figures offered some reassurance. In the latest month, total U.S. retail sales increased +5.0% on a year-over-year basis. This is exactly in line with the desirable long-term growth rate. (The three-month moving average figure was slightly less.) Food and beverage stores and health and personal care stores are currently seeing year-over-year sales gains of +6.0% to +7.0%. Motor vehicle and parts dealers (+4.6%) are achieving respectable results. The weakest retail categories are building materials (+0.8%) and furniture and home furnishings (-0.9%), as a result of bleak housing markets.

Consumer confidence measures have been declining over the last couple of months, in the wake of the bad news about mortgage defaults. Also, the unemployment rate has been creeping up ever so slightly, while employment gains have been slowing. These developments suggest potential problems on the consumer spending side of the economy that would show up in retail sales first.

Lower-valued U.S. Dollar Effect
However, there are several other factors beyond consumer confidence that will play a role in retail sales in the months ahead. For example, the decline in value of the U.S. dollar will have an impact. A lower-valued U.S. dollar means a bump up in import prices generally. This will give some upward bias to retail sales in current dollar terms, which may overstate real volume levels.

Housing Market Effect
Also, be aware that much of retail spending depends on the housing sector and some of these effects will continue to be felt for a considerable period of time. The ongoing weakness in housing starts has a lag impact on sales of furniture, appliances and home remodeling products.

Wealth Effect
Finally, the value of a person’s home is a major component of one’s overall wealth assessment. In a period of uncertain or falling house prices (in certain regions), this results in anxiety and hesitation about making financial commitments in other areas. This returns the discussion to the need to pay attention to shifts in consumer confidence. Some deterioration in retail sales going forward would not be unexpected.