How Strong Are Retail Sales ?

Look at the raw Retail sales numbers, and you might think we were in a full blown recovery. Month over month for August, it was up +2.7% versus consensus expectations of a 1.9% increase.

The source? A huge 10.6% jump in motor vehicle sales, due to the $3 billion dollar, government sponsored, cash for Cash-for-Clunkers program, as well as a slate of state sales tax holidays.

Back out autos, and sales were up 0.7% MoM — still better than consensus expectations of +0.4%. August was the best month since February 09, and ends a five-month string of flat-to-negative results.

David Rosenberg of Gluskin Sheff also notes that seasonal factors used by Commerce were  the most aggressive in five years and helped give the data bit of a boost — in fact, one-quarter of that 2.7% gain came just from the more generous-than-usual seasonal factor.

Rosie notes very specific sector winners and losers.

The sectors posting good results were …

• Clothing, which we’ve highlighted before, is on a firming trend — up 2.3% Mom and gaining in three of the past four months.
• Electronics did well too — rising 1.1% but that followed a 1.0% decline in July. No evidence of a positive pattern here.
• Food/beverage stores had their best sales month, up 0.5%, since January.
• Drug stores also had their best month since March — up 0.4% last month and up in three of the past four months.
• Sports/music/book stores had their best tally since March 2007 with a huge 2.3% run-up last month.
• One of the big upside surprises was in general merchandise (mostly department stores) which posted a 1.6% MoM surge — the best performance since March 2007 too.

The laggards in the report included….

• Restaurants — up 0.3% and this followed two months of decline. The trend in restaurant sales is clearly down.
• E-tailing was flat — web-based sales have been stagnant or down now for six of the past seven months.
• The real weak parts of the report were in the housing-related areas, even though home sales have clearly picked up off the floor.
• Furniture stores saw a 0.2% sales loss — sales have been down now for six months running.
• Building materials posted a huge 1.2% decline, the third large falloff in a row.

So far, September seems to be starting off well. Year over year trends are negative 1.9%, but the monthly changes are positive.

Its not all wine and roses, as Discount stores are the leaders, reflecting frugality on the part of value driven consumers.  Spending remains restrained in terms of discretionary purchases.

One wonders what retail sales would look like in the absence of government stimulus, tax holidays, and special bailout programs.