October retail sales data released this week by the United States Department of Commerce and the National Retail Federation (NRF) were down sequentially and up annually.
The Department of Commerce reported that October retail sales at $411.6 billion were down 0.3 percent compared to September and up 3.8 percent annually. This fell short of September’s 1.1 percent edge over August, which represents the largest monthly gain in eight months, according to Commerce data. Total sales for the August through October period were up 4.7 percent annually.
According to the NRF, October retail sales, which exclude autos, gas stations, and restaurants, were down 0.3 percent on a seasonally-adjusted basis from September and up 3.9 percent on an unadjusted basis annually.
“The underlying strength of the American consumer is encouraging but it’s far from definitive,” NRF Chief Economist Jack Kleinhenz said in a statement. “Hurricane Sandy will have short-term and long-term reverberations on the economy and will continue to impact consumer spending and retail sales over the coming months in the hardest-hit areas. Even though retail sales declined in October, NRF remains confident in moderate consumer spending nationwide, and expects a solid holiday shopping season.”
NRF President and CEO Matthew Shay added that even though Hurricane Sandy impacted consumer spending in the northeast and mid-Atlantic states, the Fiscal Cliff—automatic tax increases and spending cuts set to take affect at the end of the year— remains a far larger threat to the economy in terms of its potential impact on consumer spending and business confidence, adding that Congress needs to take action to give consumers “certainty” with the holiday season approaching.
Despite the looming fiscal cliff, there been positive economic signals of late, including improving consumer confidence data, as well as encouraging automotive sales and housing data.
But these developments have yet to translate into meaningful freight volume growth, as trucking volumes remain mostly flat, and railroad volumes are slightly down, while intermodal continues to grow and ocean capacity remains abundant in most cases.
As many economists continue to point out, higher job growth levels have the potential to boost retail sales—and overall—economic growth. But even with employment data showing some gains, it is still not yet occurring at a rate that has a meaningful impact on retail sales growth. This was made apparent by Commerce’s recent release that GDP growth for the third quarter is expected to come in at 1.9 percent.
As LM has reported, retail sales largely show slow and incremental growth, while continued growth is needed over a longer period, as consumer spending accounts for roughly 70 percent of U.S. economic activity. And while retail growth is relatively slow still, signals remain intact that the economy is showing some signs of recovery, with consumer confidence on the upswing to a large degree declines in gasoline prices over the last two months.
The continuing trend of slight or flat sequential retail sales increases remains largely intact due to fairly even retail spending at a time when retailers remain cautious on the inventory planning side and postponing commitments until the until the economic outlook becomes clearer, while they are risking stock outages by having very lean inventories.
“While September numbers reflected remnants of ‘back-to-school’ spending I suspect, October’s year-over-year figures indicate that consumers may just finally be releasing a bit of their pent up demand,” said Charles “Chuck” Clowdis, Managing Director, North America Global Commerce & Transport Advisory Services, at IHS Global Insight. “The Holiday Season spending will be very telling this year, despite so much uncertainty over possibly changing tax rates and other costs like health care that are expected to change.”
