Retail Sales Rides July Revision Like a Banshee

Includes: PEZ, RCD, RTH
by: Markos Kaminis

Retail sales data for August was not so hot, once you take note of the revision to July. It seems, though, that most talking heads on the Street today are ignoring that simple fact, perhaps to pat their own backs or to pad their assets under management.

Retail Sales were reported yesterday for the month of August, and the market jumped for joy from the get-go. Did you notice the back-step she took though, after the premarket leap? Still, as the morning wore on, every economist, strategist and research director with a bullish play on got themselves on TV; and they said "See, told you consumers are still kicking!" But, as The Greek publishes, take note of the reconciliation that occurs, because smart money is listening to us.

Sales increased 0.4% in August, an impressive rate when matched against the economists' consensus at Bloomberg. Experts were looking for a rise of 0.3% last month. Lately, we've found conspicuous drivers of positive data, and so further inspection of this report would be wise too.

Right off the bat we found a reason to sour on the data. July's result was revised lower you see, to now account for growth of 0.3%, down from the initially reported 0.4%. When the number August is compared against is reduced, that has the impact of lifting growth in the current period; this occurs even given the same level of activity as was expected for the month. So maybe August's result was not better than expected at all, given that July was backed down a bit. Thus, the wind beneath the wings of Tuesday's market might dissipate. August's sales still measured 3.6% greater than August of 2009. Though, like July, last year's comparable does not make the best of components to measure economic recovery by. You will recall that most of last year could be characterized as generational low type economic activity.

Excluding Motor Vehicles and Parts Dealers, sales rose even faster, up 0.6% in August and 4.8% against last year. 'Cash for Clunkers' (remember that?) explains the year-over-year comparison, but the fall-off in auto sales against July was -0.7%. Ford (NYSE: F) and friends can't be all too happy about that.

Other areas of weakness included Furniture and Home Furnishings Stores, which saw sales fall 0.5%. This segment's falloff seems explainable too, given the broader decline in consumer confidence and the decrease in housing activity post First-Time Homebuyer Tax Credit. Those government assisted home purchases have been closed on, for the most part, and whatever furniture was going to be purchased initially has been as well (NYSE: ETH, Nasdaq: HOFT).

Electronics and Appliance Stores again showed weakness, with sales falling 1.1%, after a 0.3% drop in July. Building Materials and Garden Equipment Supplies Dealers saw a stagnant rate of sales in August, even after taking into account seasonal adjustment. This is also explainable by the drop in housing activity since spring. Miscellaneous Stores also saw a decline of 0.9%.


The remainder of the component segments recorded sales growth in August. Gasoline Stations led the group, with sales increasing 1.9%. According to the EIA, though, the retail price of gasoline across America fell in August, to $2.67, from $2.74. It is unclear whether the price offered by the EIA is an average or if it is the month’s ending price, which seems more likely given the gas station sales. If the average price of gasoline were higher, it would partly explain why gasoline stations saw an increase of such magnitude, and I expect this is the case. The high-summer driving season surely played a role we suppose, since more of us vacation in August than in July (I am assuming this to be the case). Still, don’t get too excited about the summer driving season, since the unadjusted rate of change for gas stations was negative 0.3%. That would seem to say that the adjustment gives a big boost to August, and that it therefore reflects folks doing less in August, or perhaps spending time in one place (at the beach, mountains, amusement park or overseas).

Still, Clothing and Clothing accessories saw sales rise 1.2%; Sporting Goods, Books, Music and Hobbies Stores posted sales growth of 0.9%; General Merchandise +0.4%; Department Stores +0.4%; Nonstore Retailers (web and catalog - Nasdaq: AMZN, Nasdaq: EBAY) +0.6%; and Food Services & Drinking Places +0.1%. We cannot ignore this growth, nor explain it easily without a positive notation. The feel on the Street is that deep back-to-school discounts, states offering tax-free holidays and that restoration of extended jobless benefits last month may have helped boost demand. It all makes sense to us, and so we'll be closely attuned to September and the holiday season for further clarification.

That said, we suggest the gurus with faster lips than intellect might take deeper consideration of the fact that July's number was revised downward. Net, net, we were pleased at some of the components in August, but not enthused as much at the broader gain as the talking heads have been today.

Disclosure: No Positions