Retail Sales - Bend Not Break?

RTE Business is reporting a Surprise dip in US retail sales.

US retail sales fell unexpectedly in June as American consumers cut back their spending amid a persistent housing slump and higher energy costs, an official survey showed today.

The Commerce Department said June retail sales declined 0.9%, defying most Wall Street analysts' forecasts that sales would remain unchanged.

Stripping out vehicle sales from the June report, retail sales dropped 0.4%.

Forbes is reporting Retail Sales Take Sharpe Plunge in June.

Consumers put away their wallets in June, sending retail sales plunging by the sharpest amount in nearly two years. Sales of autos, furniture and building supplies all fell, highlighting the economy's weak spots.

The 0.9 percent drop in retail sales was the biggest decline since August 2005, the Commerce Department reported Friday. It was a far bigger setback than the flat reading that had been forecast.

In a sign of the housing market weakness, sales at furniture stores were down 3 percent last month, the biggest setback since February 2003, and sales at hardware stores fell by 2.3 percent.

"Consumers have been living beyond their means and they are now starting to slow down," said David Wyss, chief economist at Standard & Poor's in New York.

Blomberg is reporting Retail Sales Drop on Housing Recession.

American shoppers took a breather last month as the worst housing recession in 16 years eroded demand for building materials, appliances and furniture.

The 0.9 percent drop in retail sales, the most in almost two years, followed a revised 1.5 percent increase in May, the Commerce Department said today in Washington.

"Consumers are going to bend, but not break," said Mark Zandi, chief economist at Moody's Economy.com in West Chester, Pennsylvania, a unit of Moody's Investors Service, one of the world's two biggest debt-rating firms.

The sales figures reflected the slump in housing. Stores selling building materials and garden supplies showed a 2.3 percent decrease in sales, sales of electronics and appliances dropped 1.4 percent, and furniture purchases fell 3 percent. The drop in furniture sales was the biggest since February 2003.

An expanding job market will ensure spending doesn't plunge, economists said. A July 6 Labor Department report showed payrolls rose by 132,000 in June, wages grew and the jobless rate held near a six-year low.

Retail sales will "Bend Not Break" Huh?
Oh really.

Let's check back on that in say six months. Housing wasn't going to break either I recall. Remember demographics, growing population, lack of land, immigration, retirees moving to Florida, etc etc etc?

Look, let's face the facts here. Just one fact actually: consumer spending is a bubble. It has been sustained primarily by rising home prices, negative savings, and home price expectations.

Any model that says consumer suspending will not break is as good as the model that rated mortgage credit (See Fitch Discloses Its Fatally Flawed Rating Model to see how flawed the mortgage rating model is).

If you haven't done so and/or if you think employment and jobs will save the day, please read Employment on Pluto Rises for a rebuttal of the jobs are strong mantra.

Jobs did not save housing and will not save retail spending either. Instead jobs are about to compound the significant woes of the average consumer who can no longer count on treating their houses like an ATM.

Stocks Surge on Retail Sales Reports

Believe it or not that was Thursday's headline news report. Here is the link: Stocks Surge on Retail Sales Reports.

Stocks Barrel to Records on Retail Sales Reports; Dow Posts Biggest Gain in Nearly 4 Years

NEW YORK (AP) -- Wall Street soared Thursday, propelling the Standard & Poor's 500 index and Dow Jones industrials to record highs as bright spots among generally sluggish retail sales allowed investors to toss aside concerns about the health of the economy.

But investors, heartened by signs of a happy and spending consumer, clearly decided to put some money on the table. Though retail sales generally appeared to be crimped last month by higher gasoline prices and a tepid housing market, and the outlook for the coming months was difficult to ascertain, the overall reading wasn't as dour as some investors expected.

If stocks really rose on account of retail sales those gains would have vanished on Friday. So clearly we have flawed reporting.

Margin Debt

Margin Debt is a far more likely reason stocks have been rising. It has been fueling this rise. Please see Margin Debt Drives The Market for a more detailed explanation.

Retail Sales Discrepancy Resolved

The best analysis I could find on the discrepancy between what the stores are reporting and the official numbers comes from Kevin Depew on Minyanville who wrote about Retail Sal...oops in point one of Friday's Five Things. From Kevin...

Retail Sal...oops

A day after a number of retail chains reported better than expected same store sales, Retail Sales tracked by the Commerce Department fell by the most in nearly two years. What gives?

• Retail Sales declined 0.9% in the "headline number" and a worse-than-expected 0.4% excluding automobiles.
• Digging inside the data (the Commerce Department breaks the Retail Sales figures down into 14 separate categories ranging from Motor Vehicles and Parts to Building Materials, Gasoline Stations and Sporting Goods) there were a number of standout areas worth highlighting:

Furniture sales declined 3%, and have been down in four of the past seven months... by far this has been the worst performance by category even as we are told continually - almost desperately - that housing is "well contained"
Electronics sales declined 1.4%
Building Materials were down 2.3%
Health and Personal Care showed a 1.2% increase
Non-Store Retailers increased 1.2%

• Retail Sales account for almost half of all consumer spending, while consumer spending accounts for nearly two-thirds of the overall U.S. economy.
• Now, back to the discrepancy between yesterday's Same Store Sales figures today's Retail Sales - why the difference?
• The industry-reported figures yesterday account for only about 17% of total retail purchases, according to Bloomberg.
• Therefore, they rarely correlate well with the government compiled Retail Sales figures.
• With housing prices actually declining, making home equity withdrawals more difficult, watch for Consumer Credit figures - next released on August 7 - to show continued outsized increases, particularly in the credit card segment.
• When those Consumer Credit increases begin to dry up, that's when the market will begin to take notice.
• Until then? Carry on.

Thanks Kevin.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/