Early Easter, Gas Prices, Weather Blamed for April Drop in Retail Sales

Luxury remains strong; Housing weakness cited as a long-term factor; Gas prices may be key in future retail sales.

Anthony DeMarco, JCK Senior Editor -- JCK-Jewelers Circular Keystone, 5/11/2007 6:51:00 AM

April retail sales showed subdued gains due to extreme weather, rising gas prices and an early Easter, according to industry reports. Chain-store sales for the month fell by record margins.

Overall retail industry sales for April (which exclude automobiles, gas stations, and restaurants) rose 2.6 percent unadjusted over last year and decreased 0.5 percent seasonally adjusted from March, according to the National Retail Federation.

U.S. Commerce Department data released Friday show that April retail sales (which include non-general merchandise categories such as autos, gasoline stations, and restaurants) decreased 0.2 percent seasonally adjusted from last month and increased 3.1 percent unadjusted year-over-year.

“Consumers were faced with three elements last month—rising gas prices, unseasonably cool weather, and an early Easter—which impacted April retail sales,” said NRF chief economist Rosalind Wells. “Retailers are now looking to Mother’s Day to provide a nice boost in May.”

Industry sales varied across the board, NRF said. Electronics and appliance stores were a bright spot, with sales rising 0.7 percent seasonally adjusted over March and 3.6 percent unadjusted over last year. Building material and garden equipment and supplies dealers sales were weak, with sales down 2.3 percent from April and 3.8 percent over last year.

Health and personal care stores sales saw moderate gains of 0.9 percent month-to-month gains and an 8.7 percent increase unadjusted year-over-year. Clothing and clothing accessories stores sales, affected mostly by Easter falling in the earlier part of the month this year, fell 2 percent seasonally adjusted but increased 2.3 percent unadjusted from last year.

Retail industry chain store sales in April declined a record 2.4 percent on a year-over-year basis, according to the International Council of Shopping Centers, Inc.

Chain store sales fell in most sectors in April, ICSC said Thursday in its monthly Chain Store Sales Trends report. Department store sales fell 4.5 percent and discounters showed a decrease of 4.6 percent. Luxury still remained relatively strong as sales grew by 4.3 percent for the month. The other sectors that posted positive increases were drug stores (7 percent) and wholesale clubs (4.6 percent).

"April sales were impacted adversely by weather and calendar shifts, which goes a long way to explain the degree of weakness," said Michael Niemira, ICSC's chief economist and director of research.

However, a drop in the housing market is playing into a longer downward trend for chain stores, Niemira added.

"The more important story is the trend over the last two months or even the last three months. Over the last three months, for example, year-over-year comp-store sales growth averaged 2 percent per month, which was exactly half of the pace the industry experienced during the same period in 2006. A good deal of this underlying slowdown can be traced to the weakness in the housing demand and its ripple effect on retail spending."

Global Insight, which provides economic, financial, and political coverage of world markets, said April's commerce department retail sales report is consistent with the firm's view that real consumer spending will rise just 1.7 percent in the second quarter, much slower than the 3.8 percent pace in the first. But the blow of the weak April was cushioned a bit by upward revisions to March spending estimates.

"But let's be careful before concluding that the consumer has run out of steam," said Global Insight chief U.S. Economist Nigel Gault. "The most extreme weakness in April was in building materials, clothing, and general merchandise, all areas where the weather helped March but hurt April. Furniture and electronics still showed decent gains."

Gault added, "Much will depend on where gasoline prices go. It does seem likely that $3-plus gasoline is squeezing out other spending. If gasoline drops back to around $2.60 in the third quarter, as we anticipate, the consumer will regain some momentum."