On Thursday morning we learned that May retail sales came in weaker than expected at +0.3 percent vs. an expectation of +0.6 percent, although April’s retail sales were revised up to +0.5 percent vs. the first report, which came in at +0.1 percent. This sent shares of retail stocks, as measured by the SPDR Retail ETF (NYSEARCA:XRT), as the fund continues to underperform the S&P 500 by about 9 percent for the year.
The numbers, while positive, may be worse than they actually look. There are a couple of reasons for this. The first is that these numbers aren’t corrected for inflation. While we haven’t yet gotten May’s CPI data April’s CPI rose by 0.3 percent, although keep in mind that this number is the “core” number, which doesn’t include food or energy. With rising oil and food prices this number probably understates the true inflation rate. Thus, at best, April’s real retail sales grew at 0.2 percent. May’s retail sales after we account for inflation, was probably flat.
But it gets worse when we look at retail sales ex-autos. In May retail sales ex-autos grew at just 0.1 percent. In April retail sales ex-autos actually fell by 0.1 percent, and this number was revised downward despite the fact that April’s retail sale with autos was revised upward, meaning that retail sales accounted for all of the increase in retail sales and then some in April.
Why do we want to look at the data without auto sales? Most people borrow money to buy a car, and while people borrow money to buy all sorts of consumer goods they are far more likely to do so when buying a car. This means that auto sales don’t immediately translate into money leaving consumers’ pockets, which is what we are primarily interested in when we look at retail sales.