Except for Autos, Retail Sales Beat Guidance

Even though retail sales decreased 0.2 percent last month, the US dollar skyrocketed on the report because excluding autos, sales actually increased 0.5 percent.

Interestingly enough, despite the rise in gasoline prices, gas station receipts actually fell. This suggests that Americans are driving less and buying fewer cars. This weekend, the NY Times reported that gas prices are sending a surge of riders to mass transit, and the details of the retail sales report confirms that. I expect the Metro North trains to get even more packed. Consumers did increase their spending on building materials, electronics and clothing.

As indicated in my retail sales preview yesterday, earnings have increased for many discount retailers and there were many reasons to believe that retail sales were not exceptionally weak in April:

1. The International Council of Shopping Centers (ICSC) reported a 3.6 percent increase in chain store sales
2. Strong earnings have been reported by discounters such as Wal-Mart, Costco and Kohl’s.
3. SpendingPulse, the retail data service of MasterCard Advisors, reported 0.1 percent rise in spending

According to Ken Perkins of Retail Metrics Inc, April was the best month for retailers since November. Weak job growth does not always translate into weak consumer spending. In October 2001, when non-farm payrolls dropped 325k, retail sales actually jumped 6.6 percent. Retail sales can be very volatile on a month to month basis.

Even though the numbers give traders some reason to be dollar bullish, consumer spending still remains vulnerable. Therefore don’t expect too much from the dollar rally.

Comments

[Xyrus]

What consumer spending?

What I see are people buying non-discretionaries at higher prices using credit cards. That's no consumer spending. That's the consumer praying their credit limits hold out long enough for some sort of turn around.

I can tell you why weak job growth and weak economy don't immediately affect consumer spending. It's because the average consumer is a financial idiot. The average American has a negative savings rate at the moment, but they have multi-thousand dollar credit limits. When things start getting tight, they don't cut back spending. They put it on a credit card. And when that card is full, they'll put it on another one.

Credit is the American Way. Spending more than you can really afford is the American Way. Or at least that's what sold to the populace.

~X~