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U.S. retail spending stayed high but flat in June

07/14/2011 by Alex Carrick, RCD Canadian Chief Economist

U.S. retail spending stayed about even in June when compared with May, according to the Bureau of the Census. The month-to-month change in seasonally adjusted current dollars was only +0.1%.

That’s the “humdrum” news. However, on a more encouraging note, June’s level of retail sales was 8.1% higher than in the same month a year ago. That’s a pretty good increase, even after taking inflation into account.

The year-over-year change in the U.S. Consumer Price Index in May was +3.6%. Therefore, June’s “real” (i.e., after price change) retail spending was approximately +4.5% year over year, a strong rate of advance.

A major contributor to the high inflation number was the price of gasoline, +36.9% annually. Retail sales by U.S. gasoline stations in June were +23.6% year over year.

The discrepancy suggests there have been some significant alterations in transportation patterns, to cut down on mileage and reduce travel costs.

Before the recession, total retail spending in the U.S. maxed out at $384.2 billion in November 2007. Despite the sluggishness over the last couple of months, the most recent number is a new record high at $387.8 billion.

Some highlights from June’s report include the following.

For much of the past year, the auto sector has accounted for significantly higher retail spending on a year-over-year basis (i.e., almost +20% in February 2011) than the total. In the latest month, motor vehicle and parts dealers (+8.4%) saw their annual sales gain drop back much closer to the norm for all shopkeepers.

By the way, the motor vehicle and parts sector is 17% of all U.S. retail sales. In Canada, the comparable proportion is 22%.

On a three-month moving average basis, some categories that tie closely to housing markets all recorded year-over-year sales in June that were just about even with last year – furniture and home furnishings (+0.7%); electronics and appliances (-0.7% ); and building material and garden equipment (+3.1%).

Finally, it’s always interesting to look at what’s happening with non-store retail sales. Cutting-edge Internet sales fall into this category. The year-over-year rate of advance moderated slightly in June but still remained in the double digits, +12.3%.

U.S. consumer confidence has taken a drubbing from ongoing weakness in the jobs market and still-falling house prices.

The squabbling over deficit and debt issues in Washington is also no-doubt proving unsettling for many people as well.

Talk about how social assistance payments might be cut off if the debt target were to be reached in early August – with no extension worked out between a feuding House and the Executive branch – has been causing some people to look around and wonder how they’re going to meet their monthly commitments.

Some good news has arrived on the labor front, however. The latest initial jobless claims report, for the week ending July 9, recorded a decline of 22,000 to reach a much improved level of 405,000.

Regionally, the largest drop in first-time unemployment insurance applications occurred in Florida, -5,889.

An initial jobless claims figure of 400,000 and lower on a consistent basis is needed for employment to rise by at least 100,000 per month, the long-term average over the past 20 years.

Such an increase is necessary if there is going to be progress in lowering the unemployment rate from its present bloated level of 9.2%.

Actually, even stronger improvement is required since there is a natural increase to the size of the labor force each month coming from new entrants, as young adults augment the working-age population.

Of course, there are also natural decreases to the size of the labor force as well, and this will become more significant in the years ahead as the post-World War II baby boom generation reaches retirement age.

In Canada, baby boomers were born between 1946 and 1966. Do the math and you will see that the first baby boomers reach the traditional retirement age of 65 in this current year, 2011.

U.S. retail sales – three months smoothed
U.S. retail sales – three months smoothed
*"Year over year" is each month versus the same month of the previous year.
Based on latest three-month averages of current dollar adjusted data (and placed in latest month).
Adjustments are for seasonal variation, holiday and trading day differences, but not for price changes.
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
U.S. retail sales – three months smoothed
U.S. retail sales – three months smoothed
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.

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