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Strong Finish for April Auto Sales despite Bearish Retail Numbers

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Retail sector bears in April

According to April’s advance retail sales report, released by the U.S. Census Bureau on May 13, six of thirteen reporting categories experienced month-over-month declines. Categories that experienced the greatest sales declines include gasoline stations, furniture and home furnishing stores, general merchandise stores, and motor vehicle and parts dealers.

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Auto sales robust

Motor vehicle and parts dealer sales are the largest component of the retail sales report, accounting for 20.6% of April’s sales. Motor vehicles and parts dealers’ April sales were down 0.4% over March 2015 but up 5.1% over April 2014.

Despite the month-over-month decline in auto sales, most domestic and overseas companies posted strong year-over-year gains in April. Ford (F) posted its best US sales performance in nine years. Ford (F) and General Motors (GM) reported year-over-year increases in US sales of 5.4% and 5.9%, respectively, in April. Auto sales were down, however, for Honda Motor (HMC).

Worrying signs

April sales at general merchandise stores were down 0.5% over March 2015 and 1.3% over April 2014. This is the third-largest component of the sales report, representing 12.6% of sales. Department store sales, which are included in the category, were down by 2.2% month-over-month, and by 5.1% year-over-year.

Macy’s (M), the largest US department store chain, reported earnings and revenue for the quarter ended May 2, 2015, that fell short of consensus Wall Street analyst estimates. The retailer reported a 0.7% decline in comp sales for owned stores. Macy’s stock was down 2.5%.

Housing-related spending mixed

April sales at furniture and home furnishing stores were down 0.9% over March 2015 but up 1.5% over April 2014. Building materials and garden supplies sales were up, and so was April hiring activity related to residential construction. For more on this, read Most Sectors Benefit from the Employment Rebound in April.

These factors should provide some relief to home improvement retailers like Home Depot (HD). HD declares 1Q earnings on May 19. The stock was, however, down by 1.2% on May 13.

HD, M, F, and GM together constitute 1.5% of the portfolio holdings of the iShares Core S&P 500 ETF (IVV).

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