U.S. “Real” Retail Sales are in Decline
Alex Carrick
U.S. Retail Sales +2.6% in February, but Inflation Higher
U.S. total retail sales were +2.6% on a year-over-year actual basis in February 2008 and +3.3% on a three-month smoothed basis. They are currently growing at their slowest pace in about five years, dating back to early 2003. In fact, once price increases are taken into account, U.S. retail sales are clearly declining in “real” (i.e., inflation-adjusted) terms. The latest all-items increase in the Consumer Price Index (CPI) was +4.0%. The figures on sales are consistent with the fact that year-over-year job growth in the retail sector was 0.0% in February.
Nor can one take solace from the more favorable “core” inflation rate (+2.3%), which excludes energy and food. We all buy food and energy. The year-over-year retail sales increase for food and beverages in the latest month was +4.3%, while the CPI sub-index price movement for food and beverages was +4.8%. Sales by gasoline stations were +20.2%, but the price of gasoline (+34.5%) was ahead by more than one-third versus a year ago.
Home-related Retail Sales and Motor Vehicle Sales in Decline
Home-related retail sales are in negative territory on a year-over-year basis, as are motor vehicle sales. Furthermore, this is in current dollars. The constant dollar changes are even more dramatic. The problems in these two retail sectors tie in to the housing market collapse and a general lack of consumer confidence. Mortgage foreclosures and related problems with credit card debt are adding to the financial gridlock. There is good news on this front, however. Interest rates have been coming down significantly and federal tax rebate checks will be mailed out in May.
Confidence to Invest is being “Put to the Test”
The malaise in retail sales is part of the general weakness that will hold down consumer spending in the first half of this year. In turn, consumer spending is the major sub-component (about 70%) of total U.S. Gross Domestic Product (GDP). As for the non-residential construction sector, the outlook for the total economy impacts on the confidence to proceed with investment plans. At the moment, that confidence factor is being put to the test.
