Housing Holds Back Retail Sales

Housing Holds Back Retail Sales

08/13/2013 BY: MARK LIEBERMAN, FIVE STAR INSTITUTE ECONOMIST

 

Held back by a drop in housing-related retailers, total retail sales increased 0.2 percent in July, down from June’s 0.6 percent increase, the Census Bureau reported Tuesday. Economists had expected sales to increase 0.3 percent.

Excluding restaurant sales—which accounted for nearly a third of the $832 million month-over-month increase—sales were up 0.1 percent in July compared with a 0.8 percent jump in June.

The weaker-than-expected retail sales report decreases the likelihood the Federal Reserve will begin to taper its bond buying monetary stimulus program. A stronger report could have led to an announcement of a timetable as soon as the mid-September meeting of the Federal Open Market Committee. There will, however, be several other key economic reports before that meeting that could affect the FOMC’s policy.

Sales at retail sectors affected by home sales—furniture stores, electronics stores, and building and garden supply stores—all dropped in July, a combined $234 million. At the same time, auto sales fell $785 million month-over-month.

The retail sales report is significant for several reasons. In addition to tracking a major portion of consumer spending (which is about 70 percent of the economy), it reflects the influence of home buying on retail activity. According to the National Association of Home Builders, buyers of new homes spend about $9,500 on their homes in the first year of ownership, while buyers of existing homes spend about $6,500.

Weak sales at furniture or building and garden supply stores in the wake of increased home sales suggests new homebuyers may have over-extended.

Sales at furniture stores fell $118 million in July after increasing $207 million in June. The drop in July was the first monthly decline since March. A year ago, the data—which are seasonally adjusted—showed an increase of $118 million in sales at furniture stores.

Sales at electronics stores—which include appliance sales—fell $9 million in July, giving back half of June’s $18 million increase. Last July, electronics stores sales were up $114 million on a monthly basis.

Sales at building material and garden supply stores dropped $107 million in July after plunging $421 million in June. In 2012, sales at the same retail sub-sector increased $308 million in July after falling $245 million in June.

The retail report came in the same month in which the Bureau of Labor Statistics reported the number of retail jobs increased 46,800. In the last three months, the number of retail jobs is up 119,100, but jobs at furniture stores increased by only 800 and at garden supply stores by about 15,700. In the same three months a year ago, the number of jobs at furniture stores increased 1,300 and at garden supply stores fell 300.

Excluding auto sales, retail activity improved 0.5 percent in July after increasing 0.1 percent in June.

Despite a price job, sales at gasoline stations increased 0.9 percent in July compared with an increase of 0.6 percent in June. The average price of a gallon of gasoline, according to the Energy Information Administration, was $3.661, down from $3.689 in June.

The July increase in total retail activity—including restaurants—was down sharply from June, when it increased $2.6 billion. Excluding restaurants, retails sales were up $562 million in July compared with $2.8 billion in June.

The drop in auto sales followed two strong months in which sales increased an average $1.84 billion.

The retail sales report is price-driven. Data in the report are “adjusted for seasonal variation and holiday and trading-day differences, but not for price changes,” according to the Census Bureau.

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