Retail Sales – Hot Or Not?

The Commerce Department released its retail sales report this morning which showed that July total retail sales were up 0.2% compared with previous month. While this increase missed analyst expectations there has been a lot of optimism around the "core" or "less cars, gasoline and building materials" measure of retail sales which was up about 0.5% from the past month. Although many of the categories of spending in this report depicted growth over monthly and year to year comparisons there are three segments that posted declines in July when compared to June. Interestingly, all of these segments of spending are related to the critical housing sector of the economy. Sales in Furniture and Home Furnishings stores, Electronics and Appliance stores, Building Materials and Garden Equipment and Supplies all showed decreases in July (although year over year sales were down only in the Electronics and Appliance segment). It is obviously a good signal for economic growth when consumer spending expands across various categories based on improving consumer confidence and strengthening employment situation. So while I can see the reason behind some of the optimism around this release, I also see some signs of concern for a very important sector of the economy - housing. Recently firming up of home prices as the pipelines of foreclosed homes cleared have led to positive sentiment around a continuing housing recovery. However today's report exposes some potential developing weakness around sectors that are closely linked to housing, which is further accentuated by mediocre improvements in the labor market recently.