Retail Sales Advance

In January, retail sales (seasonally adjusted) increased by 0.5% over the December level, and were 4.7% higher than a year ago. That was significantly better than the 0.3% increase that was expected by the consensus of economists.

It was also a very nice pick up over the 0.1% decline in December relative to November. Previously the November number had been estimated at a 0.3% decline. The year-over-year growth rate was, however, lower than the 5.5% year-over-year growth rate in December.

As the chart below (from http://www.calculatedriskblog.com/) shows, on a year-over-year basis retail sales have staged a remarkable turnaround. Year-over-year numbers, though, often tell you as much about conditions a year ago as they say about current conditions. Yes, retail sales are up, but they are coming off extremely easy comps.

The picture is largely the same if we strip out auto sales. On the month, they rose 0.6%, and beat expectations of a 0.5% rise. In December, retail sales ex-autos were down 0.2% (unrevised). Year-over-year, sales ex-autos are up 4.6%, which is a slight slowdown from the 5.1% December over December pace.

The numbers are adjusted for seasonality, but it is a nominal report. It is not adjusted for inflation, although right now overall inflation is not a particularly serious issue.

When people hear the term “Retail Sales” they usually think of shopping at Wal-Mart (WMT: 52.90 -0.18 -0.34%) or Macy’s (M: 17.32 +0.19 +1.11%). The retail sales report includes them, but it is much broader than that. As referred to above, it also includes things like auto dealerships.

On a year-over-year basis, the numbers have been inflated by sales at gas stations, where sales were up 29.0% in January, which was actually a slowdown from the 33.3% year-over-year rise in December. Americans are not driving that much more and thus not buying lots more gallons of gasoline. Nor have they all of a sudden decided to make taquitos and hot dogs off the rollers a staple of their diets.

A big part of the year-over-year increase is simply due to the rebound in the price of oil, and thus gasoline. The collapse in gas prices a year ago played a role in the historic collapse in overall retail sales back then. The second graph (also from http://www.calculatedriskblog.com/) shows the overall level of retail sales both in total (blue line) and excluding gas stations (red line). For the month, gas station sales rose 0.4%, following a 0.9% jump in December.

Overall, though, for the month the gains in retail sales appear to be pretty broad-based. The biggest monthly increase was from non-store retailers, up 1.6% on the month and 12.4% year over year. This is mostly Internet firms like Amazon (AMZN: 119.66 -0.43 -0.36%). That 1.6% rise comes on top of a 2.2% surge in December. They are also doing extremely well on a year-over-year basis with a 12.4% increase, and unlike the gas stations that represents actual volume growth rather than simply a price surge.

However, if you recall, there was a major snow storm the weekend before Christmas, and many people turned to the net to do their shopping since they could not get out to the malls. General merchandise firms also had a nice 1.5% rise in January, but that was a rebound from a 1.1% decline in December.  Electronics and appliance stores also showed a rebound, rising 1.2% after a 3.5% plunge in December.

On a year-over-year basis, Electronics is the weakest category, still showing a 7.0% decline. That does not mean that things are horrible at Best Buy (BBY: 35.76 +0.11 +0.31%), though, because a year ago Circuit City was still around.

A simple drive around your local shopping strips will confirm that there are many fewer open retail outlets (and many more empty stores and strip malls) than a year ago, so in general same-store sales should be doing better than total retail sales. That means that costs are coming down along with the revenues.

Another area where the report was particularly weak was in furniture stores, where sales were down 1.4% on the month and off 4.4% from a year ago. That is not good news for the likes of Ethan Allen (ETH: 15.15 +0.29 +1.95%).

Furniture sales are generally greatly influenced by existing home sales. In December, existing home sales were just plain awful (down 16.7% on the month) due to people thinking that the tax credit was going to expire (it got extended at the last minute). However on a year-over-year basis, existing home sales were still up 15.0%. Given that, the 4.4% year-over-year decline has to be considered very disappointing.

Furniture is an extremely discretionary category, and this shows that people are keeping a pretty tight grip on their wallets still. In the long run that is a good thing, but in the short run it slows the economy. Building-products stores like Home Depot (HD: 29.00 +0.01 +0.03%) are also very much tied to the housing market and they are also very weak, falling 1.2% for the month and down 6.3% year over year.

All in all, though, this was a moderately positive report, and shows that the economic recovery is still moving forward, although at a slow pace.