Monday, February 15, 2010

Consumers Starting To Open Their Wallets Again

Although retail sales just finished their third month of increases with broad-based growth, the actual picture is not as rosy as the initial data may suggest. After adjusting for inflation, compensating for last year's weak numbers, and looking at who gained (gasoline retailers due to higher gas prices and the automobile industry which gained simply in comparison to the near shutdown 12-15 months ago) and who lost (electronics, home improvement, and furniture), it is clear that in our post-housing bubble economy, frugality will remain the rule moving forward. See the following post from The Mess That Greenspan Made.

The Commerce Department reported higher retail sales in January, the third increase in the last four months, as American consumers continue to open their wallets after one of the sharpest contractions in spending since the Great Depression.

Following an upwardly revised decline of 0.1 percent in December, overall sales adjusted for seasonal variations rose 0.5 percent in January and the gains were broad-based with a full nine of 13 categories posting increases.

After rising 0.1 percent in December, auto sales were unchanged last month and, excluding autos, overall sales were up 0.6 percent following a decline of 0.2 percent. Excluding both automobile sales and sales at gasoline stations, January saw an increase of 0.6 percent after a decline of 0.3 percent in December.

On a year-over-year basis, overall retail sales were up 4.7 percent and, excluding autos, sales rose 4.6 percent. As these figures are not adjusted for inflation and when considering the level of sales one year ago (see chart above), the recent data loses some of its luster, particularly when considering which components contributed most to the increase in sales over that time.

For example, from last January, gasoline station sales rose 29 percent and this was due exclusively to higher prices since the average price at the pump was about 50 percent higher than a year ago. Other categories posting the biggest gains were sales at nonstore retailers that rose 12.4 percent and auto sales that were 6.7 percent higher than immediately after the virtual shutdown of the auto industry in late-2008.

Leading the declining categories from a year ago were electronic store sales with a 7.0 percent drop, home improvement stores with a 6.3 percent decline, and 4.4 percent lower sales at furniture stores, these categories being mostly discretionary spending.

The new, more frugal, mood of the consumer in the wake of the burst housing bubble is perhaps best captured by a decade-long look a the Building Material and Garden Equipment category below, where retailers have seen higher receipts in just 11 of the last 46 months, total sales declining by almost 25 percent during that time.

Sales of food and clothing, aided by government assistance to a degree never seen before, continued to rise at about the rate of inflation, but, with unemployment still quite high, incomes flat or falling, and consumer credit collapsing as it has over the last year, it's hard to see how spending in the U.S. will rebound to anywhere near the levels seen during the middle of the last decade absent the hefty contributions from discretionary spending.

Moreover, as we move further into 2010, the year-over-year comparisons will become increasingly difficult since the worst of the spending slowdown occurred in late-2008 and early-2009.

This post has been republished from Tim Iacono's blog, The Mess That Greenspan Made.

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