Auto sector lags in US economy
Americans ramped up their online shopping and restaurant spending in October, but low inflation kept overall retail sales growth muted.
The Commerce Department said last Friday that retail sales rose a seasonally adjusted 0.1 per cent last month, after being unchanged in September and August. Over the past 12 months sales have risen 1.7 per cent. Lower gasolene costs and meagre inflation have downplayed the extent of consumer spending, as the retail sales report is not adjusted for price changes.
The US economy has increasingly relied on consumers to propel growth. Consumer spending has been crucial for offsetting the drags caused by a global economic slowdown and cheaper oil prices and a stronger dollar hurting US manufacturers. The October report suggests that some retailers had been expecting a busy holiday season, as one of the most critical drivers of retail sales growth - auto dealers - saw sales slip last month.
The auto sector appears to remain solid even with the decline in sales documented by the government last month.
Private industry reports show that car and truck purchases totalled 1.5 million in October, a 14 per cent increase from a year ago, according to Autodata Corp. Ford projects overall auto sales of 17.4 million for the entire year, besting the record of 17.35 million achieved in 2001.
But gas station store sales tumbled 0.9 per cent in October and have dropped 20.1 per cent over the past 12 months. Spending at auto dealers fell 0.5 per cent last month, although sales have climbed 6.7 per cent from a year ago.
Retail earnings that arrived this week have been far from robust. Nordstrom cut its guidance for the year due to soft sales across all merchandise categories. That followed a warning from Macy's last Wednesday, which said it was sitting on excessive inventories.
"What is worrying about the report is the combination of soft sales in September and October with retailer's guidance that this holiday season will be on the slower side," said Bricklin Dwyer, an analyst at the bank BNP Paribas.
Online purchases climbed 1.4 per cent in October. Spending at restaurants and bars improved 0.5 per cent. Furnishers, building material sellers, sporting goods outlets and department stores also notched gains.
Costs for companies dropped in October, a downward pull on prices for consumers, the Labour Department said in a separate report last Friday. Producer prices fell 0.4 per cent last month alone. Core prices, which exclude volatile food and energy costs, have risen a mere 0.1 per cent over the past year.
The lower prices mean that sales have in many cases been stronger than indicated by the retail sales report, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
The weak earnings for traditional retailers contrast sharply with expectations ahead of Black Friday.
Holiday spending is projected to jump 3.7 per cent this year to $630.5 billion, a gain that would be above the 10-year average in holiday sales growth of 2.5 percent, according to the National Retail Federation. Clothiers hired 19,500 workers in October ahead of the shopping rush, the government said last week.
Still, not all of the retail-related hiring will appear at stores and showrooms. Online retail giant Amazon announced plans last month to hire 100,000 seasonal workers, a massive 20 per cent jump from last year that reflects how Internet shopping is also changing the transportation and warehousing sector.
Economists watch the retail sales report closely because it provides the first indication each month of the willingness of Americans to spend. Consumer spending drives 70 per cent of the economy. Yet retail sales account for only about one-third of spending, with services such as haircuts and Internet access making up the other two-thirds.