Retail Sales Rise but Consumers Still Holding Back

Before you go, we thought you'd like these...
Before you go close icon
Bargain-hunting parents, weak auto sales and a run-down housing market continue to drag down retail sales, which showed steady but unimpressive growth in August, according to the U.S. Commerce Department.

The government's retail and food services sales tally for August rose to $363.7 billion, up 3.6% from August 2009 and up 0.4% from July. Most analysts had forecast growth of 0.3% to 0.5%. Excluding auto sales, totals were up 4.8% from the year-ago month and retail sales only were up 3.7%.

"The interesting thing is where the strength is: gasoline, groceries and apparel," said Sherif Mityas, a partner in the retail practice at consultant A.T. Kearney. "What you're seeing is Middle America is still very cautious, spending only on what it needs to spend on, and not on discretionary purchases."

Sponsored Links
Auto sales were down 2.4% from the year-ago period and 1.1% percent below last month; there could be some overhang there from the federal "Cash for Clunkers" rebate program, which was winding down this time last year, said Mityas. Meanwhile, gas stations were up 9.6% from a year ago and 1.9% month-over-month, despite stable gas prices.

Some home-related areas lost momentum, such as electronics stores, which were down 1.1% month-over-month, furniture stores (down 0.5%) and building supplies (flat). The weak housing market remains a drag on those areas, said Mityas.

"We're seeing a bifurcation. We're seeing some improvement in the top end, in the luxury side and the discount and dollar store. It's the Middle Americans who are really only buying on deals right now," said Mityas. Shoppers are conditioned to look for sales and specials, and are still holding back on any extra spending, he said.

Consumer Is Alive, but Kicking "With One Leg"

The Commerce Department's tally is the most complete picture of retail; it includes gas, food and auto sales, as well as the results of Wal-Mart Stores (WMT), the world's largest retailer, which doesn't publicly report monthly sales.

The tepid numbers were expected, but still disappointing. Last week most major retailers' tallies beat expectations, despite what appeared to be a stagnant back-to-school shopping season, hobbled by poor weather and disappointing employment numbers.

The government's tally should have been stronger, given the sales reports and a spate of strong late second-quarter reports from retailers including Best Buy (BBY) and Tiffany Corp. (TIF), said Brian Sozzi, retail analyst at Wall Street Strategies. Those "suggested the consumer was alive and at least kicking with one leg," he wrote in a research report. But the so-so sales numbers, coupled with a drop in the savings rate in August, suggest consumers are paying down debt, instead of spending, he concluded.

Heavy Promotions Lure Some Shoppers

There is some relief in sight; after several weeks of less-than-stellar sales, back-to-school shopping appeared to pick up momentum again after Labor Day. The International Council of Shopping Centers reported sales for the week ended Sept. 11 rose 2.6% from the year before. More importantly, sales were up 0.8% from the week before; sales in August had been flat to lower week-over-week, as a series of heat waves kept shoppers from the malls.

"A recent bout of seasonally cool weather finally provided the lift in seasonal demand for fall and back-to-school apparel spending which retailers were waiting for," wrote ICSC chief economist Michael Niemira. He's holding to his forecast of 3% increase in sales in September over the same time last year.

The housing and employment markets "will continue to be the biggest depressors on retail sales," said Mityas. But thanks to retailers' promotional efforts, the back-to-school season is showing some improvement, he said.

"Back-to-school is OK. Not anything to pop the champagne corks over, but OK, which bodes well for the holidays," said Mityas. But retailers will have to continue the offers and promotions to keep building store traffic for the winter holidays, he said.

"Holidays should still be within expectations, but highly promotionally driven," he said. "Everything is about getting folks into the stores."
Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners