Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The Ugly Truth Behind Retail Sales


The clunkers program should give retail a boost, but the outlook is grim.

Cash for Clunkers might have goosed US retail sales in August, but there are reasons to believe that in the months ahead, consumer spending will sputter just like the jalopies Americans traded in for their brand new cars.

The big economic report of the week is due out Tuesday morning, when we receive the latest data on retail sales. Economists are looking for sales to rise 2.1% after a 0.1% decline in July. Americans, while still dealing with a lousy labor market, couldn't pass up the government's Cash for Clunkers offer. But the obviously more important and critical question is how consumers will spend in the future.

There are still plenty of reasons to remain cautious about how much our neighbors are going to shell out at the mall, say economists and investment professionals.

Retail sales fell apart starting in September 2008, when the financial markets cratered. Sales have declined 8.3% in the past 12 months. Excluding autos, sales have fallen 8.5% in the past year.

Economists expect that the Cash for Clunkers program provided some relief in August. Sales of cars and trucks increased to a 14.1 million seasonally adjusted annualized selling rate (SAAR) compared to an 11.2 million SAAR in July.

Excluding auto as well as gasoline sales -- which were likely boosted by a 3.4% increase in gas prices in the month -- sales are poised to rise just 0.1%, says Joseph LaVorgna, chief US economist at Deutsche Bank.

"This would strongly suggest that the surge in motor vehicle sales pulled spending away from other big-ticket discretionary items such as furniture and building materials," LaVorgna wrote in a recent research note.

Still, LaVorgna says that the surge in motor vehicle sales is impressive. And, if his retail sales forecast is on the mark, real (inflation-adjusted) consumption could be up 3% this quarter, he thinks.

However, the important question to try and answer is whether, looking ahead, Americans will keep on spending at this rate.

David Wyss, chief economist at Standard & Poor's, is skeptical.

"Consumers are spent out," Wyss tells Minyanville. "We went into all this with a saving rate of 1.7% and household debt at a record high. That puts a limit onto how much Americans can continue to live beyond their means."

Wyss sees real consumer spending rising just 0.5% in 2010.
< Previous
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos