US Retail Sales Drop is not a Trend

Today's US retail sales figure came out a negative 1.2%. Stock market futures immediately turned down, and the prognosticators of a double-dip recession turned up their volumes. Actually, this number isn't surprising since last week's non-farm payrolls came out below expectations. At the same time, core retail sales (which excludes cars, gasoline and building materials) were up 0.1% in May having dropped 0.2% in April. The risk of a double-dip decline is rising, but it is not inevitable. It's not even likely.

The 9.3% drop in receipts from building materials and gardening supplies may or may not be tied to the end of the homebuyer tax credit. What is certain is this one sector of the economy more or less wiped out any good news when aggregated with the other sectors. However, the summer is peak building time, and one would prefer to see the figures for June and July at a bare minimum before declaring the sector a catastrophe as some pundits are currently doing.

Other negative segments are auto and gasoline as well as clothing and accessories. The auto business has suffered recently because the tax credits and "cash for clunkers" program essentially moved purchases forward. That said, the new model year starts in a few weeks, and that may mark a revival in cars. Gasoline sales should rise in terms of gallons sold as the US driving season gets going. However, with oil prices wobbly, that may not translate into more dollars spent on fueling the new car. Clothing and accessories are off, but the back-to-school shopping season should right that.

Not surprisingly given that summer is almost here, sporting goods, hobby and book stores sales rose 0.4% percent in May after April's 1.3% drop. Also, receipts at electronics and appliance stores increased 0.6%, reversing the April's fall. It's as if the entire consumer sector has decided to go to the beach for a while and do its spending when it gets back.

What could louse up the current situation is any move by Congress to shrink the deficit by cutting spending or raising taxes before the end of the year. As economic activity rises, so will tax receipts, and therefore, the budget deficit will start shrinking. When the unemployment rate dips below 9%, and not a second sooner, further anti-deficit action will be necessary for the country's long-term prospects. However, the current situation is rather like a house with a hole in the roof, spending on shingles is probably a good idea, even if it's done on credit.

© Copyright 2010 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

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