Retail Sales Stabilized in January, Future Remains Gloomy
Retail sales moved up 1.0% in January, after a revised 3.0% drop in December. The gain in retail sales in January was a surprise. But, the good news does not imply that the weakness in consumer spending is behind us. Unemployment claims numbers were also published in addition to retail sales this morning. Jobless claims remain at elevated levels (see chart 3) and reinforce expectations of a continued gloomy outlook. The bottom line is that consumer spending will be weak again in the first quarter, but by a considerably smaller degree. The weakness in the fourth quarter is most likely the worst performance of retail sales in the current downturn.
The details of the report indicate that gasoline sales (+2.6%) increased partly due to higher prices for gasoline. Purchases of apparel (+1.6%) appear to be a temporary event because sales advanced due to heavy discounts. General merchandise (+1.1%), food (+2.1%), and electronics (+2.6%) also rose in January, while sales of furniture (-1.3%) and building materials (-3.2%) fell. The increase in auto sales (+1.6%) is not useful because unit auto sales numbers are reflected in consumer spending of the GDP report. Unit auto sales dropped to an annual rate of 9.6 million units in January vs. 10.3 million in December.
In other related news, the widespread weakness in demand is visible in the inventories-sales ratio across the three stages of distribution – wholesale, factory, and retail. Both inventories (-1.3%) and sales (-3.2%) fell in December. The larger decline in sales led to a significant jump in the inventories-sales ratio to 1.44 in December from 1.41 in the prior month. The December 2008 inventories-sales ratio matches the level seen in the 2001 recession (see chart 2). It is conceivable that a new record for the current recession is likely in the months ahead given projections of declining consumer spending in the months ahead.
In other economic news, initial jobless claims fell 8,000 to 623,000 during the week ended February 7. Continuing claims, which lag initial claims by one week, rose 11,000 to 4.810 million and the insured unemployment rate held steady at 3.6%.
