News Feature | September 16, 2013

Tepid Sales Growth Is Better Than No Sales Growth... Right?

Source: Retail Solutions Online
Sam Lewis

By Sam Lewis, associate editor
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August marks fifth consecutive month of growth in retail sales

The final month of summer showed that American consumers are spending their discretionary dollars with retailers, although they’re doing so at a sluggish rate. The U.S. Department of Commerce announced on Friday that retail sales climbed 0.2 percent, marking the fifth consecutive month of gains, though it marked the same small growth in July. Sales in retail are closely watched by the government, as they are the first barometer of consumer spending, since retail accounts for 70 percent of economic activity.

Despite the growth, the numbers still fall below the consensus of experts, who forecasted gains of 0.3 percent. This is a reflection of poor back-to-school numbers that many retailers reported. The International Council of Shopping Centers polled ten retailers about sales in August of 2013. According to its research, the council says sales increased 3.6 percent throughout the month, but marked a decline from 6 percent for the same retailers in August, 2012. “Consumer spending remained stuck in middle gear in the summer,” said Sal Guatieri, an economist at BMO Capital Markets.

That’s not to say that all sectors of retail are growing slowly, though. Consumers bought more furniture, electronics, and new cars in the final month of the summer. August of 2013 brought an increase of 17 percent in new car sales against August of 2012. Building materials and home improvement segments of retail also fared well. Lowe’s and Home Depot posted big profits in the second-quarter of 2013, mostly in part to the recovery of the housing market.

The forecast, according to Guatieri, is for retail sales to grow about two percent in the July to September quarter, which would match the previous quarter. The numbers seem to suggest retail sales growth is trending below the two and half percent forecasted by the government in the April to June quarter. Still, the sales figures appear to be healthy enough for the Federal Reserve to begin its plan to slow its bond purchases. The Fed is currently buying $85 billion in Treasury bonds, along with securities tied to mortgages, each month in an effort to spur spending and borrowing, and to have interest rates remain low.

The overall health of retail might be hard to determine right now, as different segments are reporting contrasting numbers. It might be easier to point out individual categories of retail to better gauge economic prosperity, or the need for a turnaround. However, the general trend, at least for the last five months, has been a slow, steady increase in sales. With the holiday season looming, spending and saving are on consumers’ (as well as retailers’) minds. The NRF’s recent release shows that retailers are buying merchandise in bigger quantities than last year in preparation for the holidays, reflecting the slow, sustained growth of 2013.