Retail Sales Disappoint - Again

The Commerce Department reported(.pdf) that, after rising 0.8 percent in June, retail sales fell 0.1 percent in July, disappointing analysts who were expecting a gain of 0.8 percent.

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The wildly popular "Cash for Clunkers" program saw motor vehicle sales surge 2.8 percent, but broad declines in other categories pulled overall sales lower, paced by a 2.1 percent decline in sales at home building material and garden equipment stores.

Gasoline station sales also declined 2.1 percent, but this was largely due to lower prices at the pump during the July reporting period.

Excluding motor vehicles and parts, sales fell well short of the consensus estimate of a 0.1 percent gain, down 0.6 percent in July after rising 0.5 percent the in June.

On a year-over-year basis, retail sales are now down 8.5 percent.

The fallout from the bursting of the housing bubble is clear to see in the ongoing sales decline at building material and home improvement stores as, aside from volatile gasoline station sales, this category is worse than any other on an annual basis, down 14.7 percent from a year ago.
Interestingly, sales at electronics and appliance stores are down 14.6 percent from a year ago, presumably due to a lagging household appliance sector rather than consumer electronics such as iPhones and iPods which still seem to be flying off of the shelves.

It's hard to imagine how a bigger bubble than the housing bubble could ever be created as this particular bubble had so many second-order effects on the economy, the area shaded in gray in the graphic above being one of the major ones.

Comments

[Carlos Lam:]

It's not hard to figure out why: the household debt-to-GDP ratio is about 100%. Wise consumers intuitively KNOW that they have to reduce their debtload; foolish government is taking on MORE debt ostensibly to "rescue" the economy. The household debt-to-GDP ratio must continue to be whittled down before the consumer can get back on his feet. The imminent retirement of the 70 million or so Baby Boomers makes such saving even more important for that cohort of Americans.

Aug 13 10:56 AM

[Harry Tuttle:]

Next program: cash for dishwashers, then cash for refrigerators, cash for large TVs after that, and cash for boats to be ready for next summer.

Apparently we have discovered there is a free lunch after all.

Aug 13 11:14 AM

[fatcat:]

Also,prices are up quite a bit on groceries,for the past year...looks like about 15-20% on items I buy regularly.And food stamps are being used by many people in my area.

This would certainly be bullish for grocery chains....

Aug 13 11:54 AM

[CautiousInv...:]

YOY retail sales are down 8.5%.

Excluding transfer payments, salaries and wages are falling at an approximate rate of 5.5%. So a year ago wages were $100 and today they are $94.50. Savings are up, say, four percentage points.

So you would expect spending to be down to $90.72 (94.50*.96) or a decrease of 9.3%. Close than those other guys.

Aug 13 12:00 PM

[Hot Richard:]

"Next program: cash for dishwashers, then cash for refrigerators, cash for large TVs after that, and cash for boats to be ready for next summer. "

It is not unlike Ponzi.

Did you vote for or against Cash4Clunkers?
Did you vote for or against TARP?

Of course the answer is "you did not get to vote". Capitalism has been thoroughly beaten by collectivism and there isn't a credible whimper of dissent in America. Amazing.

Aug 13 12:30 PM

[Ted Hurlbut:]

WalMart is facing the same headwinds as everybody else. Retailers have absolutely no pricing power right now, both in core staples, but especially in discretionary goods. They can maintain unit sales with deep discounts, but absent those discounts they can't generate units. They can't move the top line, margins remain under pressure, and earnings continue to be driven by cost cutting. It's not a good formula, and the longer the consumer holds back, the more it becomes a cultural norm rather than just a rational economic response. This is not likely to be reversed any time soon, and until then retailers have to scratch and claw as best they can.

Aug 13 01:20 PM

[Mark Bern:]

I'm ready to go out on a limb today and consider put options on Sears Holdings and Stein Mart.

Sears (SHLD) is real a play on commercial real estate (at least that is how their supporters compute its value) and CRE is heading for a tumble. Sears is also getting beaten up on the revenue end of their income statement and may do barely better than break even this year.

Stein Mart (SMRT) is losing money fast. It's stock recently climbed from <1$ to $12 (a 1100% gain) off the recent bottom. They really deserved to be priced closer to the bottom than this high.

This holiday season could be a bigger surprise this year (to the downside) if sales remain this weak. If so, retail stocks should falter in January. I expect the CRE crisis to get under way by near the holiday season as well so Sears could face a double whammy.

With a run up in stocks, especially in retail, like we have just experienced where the rising tide lifts all boats, I find it beneficial to pick off the weaker stocks that don't deserve the bounce. Of course, when we experience a bottom, as we did in March, I also find if beneficial to scoop up the best companies with strong future potential. Patience is the key for my investing style.

Aug 13 01:46 PM