Weekly Retail Sales Bode Well for October Economic Growth
“As job reports continue to fall short of expectations and uncertainty about the debt limit and the federal budget persist, it is possible that consumer spending will decline in the coming months,” Gallup’s Brendan Moore wrote in the research firm’s monthly analysis of Americans’ self-reported daily spending. “Americans’ soured optimism has yet to affect spending, but lag effects are still a concern.”
In October, excluding household bills and major purchases like a car or home, Americans spent an average of $88 per day, a modest increase from September’s $84. Yet while October’s reading was marginally higher, the increase is far too small to indicate any significant improvement in economic conditions.
September’s dip was largely due to the looming possibility of a government shutdown, and October’s slight rebound was likely due to the fact that the debt ceiling crisis and budget stalemate were temporarily dealt with partway through the month. Still, before the political dysfunction in Washington reached its climax, the economic situation was not exactly rosy — job creation was stumbling and government retail spending figures were weaker than earlier in the year.
The 16-day government shutdown, uncertainty over government spending, and the possibility of a debt default only further depressed many economic indicators. As long as the labor market improves only modestly and income and wage growth remains relatively stagnant, as it has since the end of the recession in June 2009, many American consumers will continue to be in a difficult position.
And if American consumers are in difficult position, so is the economy — consumer spending accounts for approximately 70 percent of gross domestic product, and because government and business spending have remained weak, the economy is depending even more on household spending to fuel growth.
It is important to remember that the American consumer was already facing difficulties before the political crisis began.“A lot of people are going to say the government shutdown reversed the trend in consumer spending, when in fact when you look back on July, August, September, you already see a slowing or at least a topping out in spending patterns,” ITG Investment Research chief economist Steve Blitz said after last week’s retail data was released by the Department of Commerce. “There’s no question … that the slowdown hurt — the second half of September was a lot slower than first half [but] you will see it in full force when the October numbers come out” on November 20.
Until the government’s retail spending figures are released later this month, data released weekly by the International Council of Shopping Centers in conjunction with Goldman Sachs and the Johnson Redbook Index provide a snapshot of the month’s trajectory. In general, same-store sales have been volatile, swinging from contraction to expansion on an almost weekly basis.
But overall, ICSC’s same-store index points to a general improvement in retail sales in October, while Johnson Redbook’s month-to-month sales comparison suggests that consumer spending declined over the month.
In the week ended November 2, according to ICSC-Goldman’s same-store sales index, sales at chains contracted 0.6 percent, week over week, after contracting at a 0.4 percent rate in the previous week. On a year-over-year basis, the index’s growth continued to slow, posting a 1.9 percent expansion compared to the previous week’s 2.2 percent expansion. In particular, “business improved for drug stores, department stores, wholesale clubs and furniture stores while it was weaker for grocery stores, apparel stores, discounters, dollar stores and electronics stores,” explained Michael Niemira, ICSC’s vice president of research, in the press release.
The ICSC-Goldman index has been volatile in recent weeks. Before the jump recorded in the week ended October 19, the index had trended down for two consecutive weeks, suggesting that October’s results could be weak.
Yet the four-week moving average has remained at 2.1 percent, which, despite being soft, is still slightly higher than the month-ago trend. That fact indicates that the government’s October retail sales report could be stronger than last month’s data. Retail sales were shockingly low in September at the headline level, dipping 0.1 percent; the core reading showed a more positive picture of consumer spending.
Excluding September’s 2.2 percent drop in automobile sales, the largest decline since October 2012, retail sales rose 0.4 percent. The 0.1 percent decline in the headline retail sales figure was the weakest reading recorded since March, yet given that sales dipped largely because of the decline in the automobile segment, September’s drop is expected to be temporary. Of course, the fallout from the partial government shutdown will then have to be considered, and as Moore noted, the plunge in economic confidence could translate into consumer spending.
Comparatively, the Johnson Redbook Index showed strong same-store sales for the week ended November 2. The index has expanded 3.8 percent over the past 12 months, which compares with the previous week’s 3.6 percent rate of growth. Furthermore, Redbook’s monthly comparison contracted at a 1.2 percent rate after contracting 1.4 percent the week before. Still, Johnson Redbook’s month-to-month sales comparison suggests that consumer spending declined over the month because its four-week average of plus 3.4 percent falls below September’s stronger 3.9 percent average.
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