Economic Notes: Retail Sales Push Pause Button
7/19/2010
By Patrick O'Keefe, Director of Economic Research, J.H. Cohn
Retail sales
slipped in June for the second consecutive month, according to the Census Bureau.
Before the pause, however, retail sales had improved steadily from the March 2009 bottom. The only significant exception was caused by September's sharp drop in auto sales immediately after the expiration of the “cash-for-clunkers” incentives.
Is the two-month lull a breath-catching pause or the beginning of the dreaded double dip? The answer requires a bit of context.
First, the decline during the two-month pause was more than accounted for by drops in three components. Of the total decline: 43.5% was attributable to reduced sales of building/garden supplies and equipment; 28.9% to fewer auto sales; and 28.0% to lower gas station receipts.
Second, during the pre-pause rebound (from March 2009 through April 2010), those three components substantially out-performed the 10.8% gain in total retail sales. Receipts at building/garden outlets were up 34.1%; car dealerships 14.6%; and gas stations 35.3% – slightly less than the increase in gasoline prices. A slowdown in their growth rates was inevitable.
Third, consumer prices have declined over the past three consecutive months, thereby increasing households’ purchasing power. Today’s consumer appears more disciplined (i.e., less prone to impulse purchases) and, therefore, adheres to the mantra: “if it’s not on the list, it’s not in the cart.” With lower prices, it took fewer dollars to complete the same list in June than in April.
Fourth, despite their new found discipline, consumers’ spending rose gradually as their incomes increased. Both should continue upward, but only slowly.
The assumption here is that incomes will continue to rise gradually and deflation (i.e., falling prices) will prove temporary. If so, retail sales will resume their slow, but steady improvement.
In answer to the earlier question, then: the recent lull is more likely a hiatus than a halt; an interruption in an expansion rather than a harbinger of another contraction.
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The statements, opinions, and conclusions contained herein are based solely upon the author’s own studies, research, and personal experience. Neither J.H. Cohn LLP nor the author makes any representation or warranty as to the accuracy or completeness of this information. J.H. Cohn LLP and the author expressly disclaim any liability for any loss or damage which may be incurred, of any kind whatsoever, as a result of or arising from the use of any of the information contained herein or reliance on the accuracy or completeness of it.
Patrick J. O’Keefe is director of economic research at J.H. Cohn LLP. He can be reached at pokeefe@jhcohn.com or 877-704-3500.