U.S. Retail Sales Fall In April - Where The Money Is Going

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by: Tim Worstall
Summary

US retail sales fell 0.2% in April on a month by month basis.

Still up 3.1% on a year by year count.

But if the money's not being spent then where is it going?

US retail sales are reported by census to be 0.2% down for April. This is not normally taken to be a good sign. If everyone's spending less money then this is less aggregate demand, therefore we might be in for a shrinking economy. And that's certainly possible, of course it is. Although it's highly unlikely that this is the explanation here. For we see no other signs of the economy shrinking at all. Most notably we don't see incomes falling anywhere.

That means that if people are spending less through retail channels then they must be doing something else with it - we really don't think that they've got less overall.

From Census:

us retail sales

One explanation we could reach for would be that more is happening online. But that doesn't work - online is included in retail sales. Another possibility is that we've underestimates in Feb and April and a bolus therefore in March. That is possible and we'll only really know the truth of that in another month when we get final retail figures for April. Today is just the initial pass at estimations.

But despite the blip upwards in March we do think that we're getting less than stellar retail increases, even those mild declines:

Advance estimates of U.S. retail and food services sales for April 2019, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $513.4 billion, a decrease of 0.2 percent (±0.5 percent)* from the previous month, but 3.1 percent (±0.7 percent) above April 2018. Total sales for the February 2019 through April 2019 period were up 3.0 percent (±0.7 percent) from the same period a year ago. The February 2019 to March 2019 percent change was revised from up 1.6 percent (±0.5 percent) to up 1.7 percent (±0.2 percent). Retail trade sales were down 0.2 percent (±0.5 percent)* from March 2019, but 2.8 percent (±0.5 percent) above last year. Nonstore retailers were up 9.0 percent (±1.2 percent) from April 2018, while sporting goods, hobby, musical instrument, and book stores were down 8.5 percent (±2.6 percent) from last year.

That last sentence is the internet shopping stuff. Nonstore retailers are Amazon and competitors. And those four retail sectors are the ones being hardest hit by online. The importance to us here being simply that we can see this effect is being included in these numbers.

Moody's Analytics lays out the information a little more easily for us than Census does:

us retail sales changes As ever we try to pull the more variable items - food and energy and energy here means gasoline - out to give us a core reading. And that's down too.

However, don't forget that these numbers are without adjusting for price changes. If we're seeing deflation in retail prices then this is what we would indeed see. Even as Americans are buying the same amount, possibly more, the cash they've got to pay for it falls as a result of that deflation. What do we think internet shopping does? Introduces price deflation into retail.

No, I don't say this is the cause here. But we do need to think about it even if to reject it. Other macroeconomic tests of the influence of Amazon, etc. on inflation tell us that online is reducing retail inflation by about 0.5% a year, a full half a percentage point.

This isn't the cause here though, so we can consider it to reject it. As we saw from the CPI numbers:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in April on a seasonally adjusted basis after rising 0.4 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment.

Even if inflation is modest it's still not deflation explaining falling retail sales.

As Moody's says:

Trend growth should improve modestly going forward. Important fundamentals are positive. The labor market will be key for consumer spending later in the year as the unemployment rate drifts lower in response to still-strong job growth. This will support further growth in nominal wages. With the saving rate comfortably within its recent range, it seems likely that consumers will spend increases in their income. Other supports include low debt burdens and generally available credit for qualified borrowers. These should offset any drag from consumers shifting their spending to services.

We expect retail sales to increase because fundamentals are strong, this is, we think, just a blip.

But it's the other bit there that gives us our macroeconomic news. If Americans aren't spending on retail then where's the money going? Must be either to services or they're saving it. We don't see the savings rate changing enough to explain it therefore it must be services which are being bought. And in terms of the macroeconomy that's not a problem in the slightest. Even, it's beneficial, services are more likely to be domestically produced rather than the imports that dominate retail sales.

As investors therefore we might think that this mild fall in retail sales is a bad thing for the retail sector. We might want to be more selective about who we support. We're not going to gain much by being just in the sector, we'd have to pick and choose to gain that is. However, as news about the economy as a whole this doesn't make much difference either way. Retail sales aren't the whole economy and anything that isn't being spent here must be being spent in the other major sector, services. And for the macroeconomy what people spend upon isn't anywhere near as important as they do spend.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.