NRF: Consumers Spending on Essentials

Global Insight: Fed's numbers don't add up

-- JCK-Jewelers Circular Keystone, 2/13/2008 7:59:00 AM

Retail industry sales for January (excluding automobiles, gas stations, and restaurants) rose 2 percent unadjusted over last year and 0.1 percent seasonally adjusted from December, according to the National Retail Federation. The organization says that the results show that consumers last month were focused on buying necessities more than discretionary items.

January retail sales released today by the U.S. Commerce Department show total retail sales (which include non-general merchandise categories such as autos, gasoline stations and restaurants) increased 0.3 percent seasonally adjusted from last month and 4.6 percent unadjusted year-over-year. 

“The January numbers are indicative of the issues consumers are facing, including the housing slump, a sluggish employment sector and high energy prices,” said NRF chief economist Rosalind Wells. “We expect to see marginal improvements in the second half of the year once consumers begin to receive their rebate checks.”

Helped in part by winter clearance sales and other weather-related purchases, sales at clothing and clothing accessories stores increased 1.4 percent unadjusted year-over-year and 1.4 percent seasonally adjusted month-to-month, NRF said. Health and personal care stores sales also saw moderate increases with sales increasing 3.5 percent unadjusted over last year and 0.8 percent seasonally adjusted from December.

General merchandise stores sales also increased 3.5 percent unadjusted year-over-year and 0.1 percent seasonally adjusted month-to-month.

Stores selling home-related merchandise saw the biggest sales declines, according to NRF.

Sales at furniture and home furnishings stores decreased 4.3 percent unadjusted over last year and 0.5 percent seasonally adjusted from last month. Building material and garden and equipment stores sales decreased 5.8 percent unadjusted year-over-year and 1.7 percent seasonally adjusted month-to-month.

In analyzing the commerce department's numbers, Global Insight's U.S. economist Brian Bethune noted that when excluding gasoline, retail sales were flat. Purchases at gasoline stations jumped by 2 percent, but about 50 percent of that increase was due to higher average pump prices.

Core sales that feed real consumption spending increased by 0.4 percent, Bethune said, adding that real consumption spending is still expected to be relatively weak in the first quarter, with a gain of less than 1 percent expected.
 
"While the top level numbers, at first blush, look respectable, there are a number of distortions to the data which worked to bias the numbers upward in January," Bethune said. "The main distortion was auto sales, which the Census Bureau reported up by 0.6 percent. This is completely at odds with auto industry data, which reported a 5.6 percent drop in overall unit sales in January to 15.3 million units. The Census Bureau runs their own auto sales survey, and every once in a while this Census survey is 180 degrees opposite to the auto industry data. That typically leads to a revision to the Census data, and there is a very high likelihood that the January auto sales numbers will be revised down in next month's report."

He continued, "The second distortion is in the non-auto sales number, which was pushed up by a 2 percent jump in gasoline purchases. Retail gasoline prices were up by just under 1 percent in January, so the volume increase in gasoline purchases was perhaps close to 1 percent. That volume increase looks a little rich compared with what the petroleum industry is reporting on the demand side.

"More recent reports on February retail sales continue to tilt on the weak side, and consumer confidence is sliding further downwards," he added. "As a result, we still expect real consumption spending to track below 1 percent in the first quarter. Today's report does not alter our view that real consumption spending is in the process of slowing down further. Combined with another very large negative contribution from housing investment, this will ultimately lead to a negative real GDP growth rate in the first quarter of 2008."

Waltham, Mass.-based Global Insight provides economic and financial analysis throughout the world.