According to the monthly Commerce Department report, retail sales, which account for about one-third of US gross domestic product, fell a record 2.8% in October, after a downwardly-revised 1.3% decline in September. The number was well below expectations, as economists were expecting a 2.3% drop in total sales.

US consumer spending had been the engine of US and global growth for most of the decade, but high debt loads, falling home prices, rising energy prices, flat income growth and poor job prospects have taken their toll on the American consumer. – Rex Nutting, MarketWatch.

Many fear that consumer spending in the US will further erode, as economists have already projected a decline in inflation-adjusted consumer spending for the first time since 1991. And considering that retail sales account for about half of consumer spending and about one-third of domestic demand, that is not good news.

As for this report, at first glance, it looks really bleak. But once you analyze the numbers, one determines that it may not be as bad as everyone says. First off, if you exclude the brutal 5.5% drop in automobile purchases, sales fell a less drastic but still grim 2.2%. Now, remove gas station sales from that number and you get a more palatable 0.5% decline in total sales. That is definitely not as bad as people were thinking. Finally, one must take into account the effect of inflation and deflation on sales. Since the retail sales number is not adjusted for any price changes, the report may overstate sales in inflationary times and understate sales when prices drop. Consider this (via MarketWatch):

Falling gasoline prices accounted for about half the decline in total sales in October. Sales at gas stations fell a record 12.7% as the average price at the pump plunged.

So are consumers really cutting back in epic proportions, or may it just be a case of falling prices with a large dose of fear and and a measure of uncertainty? You decide.

Report Details

Sales of durable goods remained weak. Sales at furniture stores dropped 2.8%, sales at electronics and appliance stores fell 2.3%, and sales at hardware stores fell 0.4%.

Sales at the mall were horrible. Department store sales dropped 1.3%, clothing store sales fell 1.4% and sporting and hobby stores sales fell 1.6%. As bad as those numbers are, they are slightly better than in September.

Sales at grocery stores were flat, while sales at bars and restaurants rose 0.3%.

Sales at health and personal care stores rose 0.4%.

Sales at nonstore outlets, such as catalogs and online stores, fell 1.8%

In the past year, retail sales are down 4.1%. Sales are down year-over-year for the first time since 2002. The figures are not adjusted for price changes.

See Full Report.

Print Friendly, PDF & Email