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Auto Sales Rise, but Core Retail Sales Remain Subdued in March

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Advance retail sales disappoint

The cold weather is gone, but shoppers have not come out to shop. Advance estimates of retail sales showed that retail sales rose 0.9% in March 2015 from a month ago. This followed an upwardly revised 0.5% decline in February, which was reported as a 0.6% fall earlier. The rise in retail sales in March came after three straight months of losses.

Sales increased, so why are we saying that shoppers did not come out to shop? That’s because core retail sales, which exclude automobiles, gasoline, building materials, and food services, rose only 0.3% in March after falling by 0.2% in February. Core retail sales figures are the ones used to calculate consumer spending, which determines economic output. A subdued rise like the one in March indicates that the consumer spending input in the calculation of GDP (gross domestic product) remained subdued as well.

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Since consumer spending makes up ~70% of the GDP, it may mean a dim quarter for economic growth. Subdued sales not only affect ETFs such as the Consumer Discretionary Select Sector SPDR Fund (XLY) and the Consumer Staples Select Sector SPDR Fund (XLP), it’s also not good for broader equity market-tracking ETFs such as the iShares Core S&P 500 (IVV) due to its implications on the overall economy.

Keep in mind, though, that these numbers are volatile and subject to revision.

Excluding motor vehicles and parts, retail sales rose 0.4% in March. February reported no change compared to a 0.1% fall initially estimated.

Auto sales surge

Now let’s look at the brighter side of the report. Consumers did shop for automobiles. Motor vehicle and parts dealers reported a healthy 2.7% rise in sales in March after a smaller than initially estimated 2.1% decline in February. According to Automotive News estimates, Toyota Motor (TM), General Motors (GM), and Fiat Chrysler Automobiles US (FCAU) saw rises in fleet sales in March 2015. However, retail sales at GM and Ford (F) fell.

Gasoline sales at gas stations fell again in March after having risen in February. The rise in February was the first time sales had risen since May 2014. Sales at the pump fell 0.6% month-over-month in March after rising by a higher-than-estimated 2.3% pace in February.

Eating out and other segments

Food services and drinking places reported a 0.7% rise in monthly sales in March. February’s sales were upwardly revised to show a 0.2% rise rather than the 0.6% fall previously reported.

Purchases at department stores, excluding leased departments, rose 1.4% in March after falling by the same pace in February.

Sales at home furnishing and furniture stores such as Mohawk Industries (MHK) and Leggett & Platt (LEG) were up by 1.4%. Growth in these categories is also an important indicator for sales gains at major home improvement retailers such as Home Depot (HD) and Lowe’s (LOW).

Consumer prices rose in March 2015. We’ll look at that in the next article.

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