Retail Sales Sink Without Tax Rebates To Support Spending

Retail sales fell more than expected in August, dropping -0.3% MoM (consensus +0.2%, prior revised down to -0.5% from -0.1%). As retail sales account for about 30% of total consumer spending, which in turn accounts for about 70% of GDP, a slowdown here is bad for the economy. If auto sales are excluded, retail sales fell -0.7% MoM (consensus -0.2%, prior +0.3%), for the largest decline this year. Clearly, the impact of the tax rebate checks has faded fast as wages struggle to keep up with inflation and unemployment rises. Tightening credit is not helping the situation either. The sales declines were broad-based in August. Declines were seen in electronics, building materials, clothing, and even gas station sales (-2.5% MoM). The drop in gasoline prices was apparent. Excluding gasoline, retail sales were unchanged last month after falling -0.6% MoM in July. New incentives helped auto sales rise for the first time since January, growing +1.9% MoM after hitting a 15-year low in July. Department store sales experienced their largest drop in over a year at -1.5% MoM. Sales at non-store retailers (internet) fell an even larger -2.3%, for the largest drop since March 2007. Sales of goods excluding autos, gasoline, and building materials fell -0.2% MoM, the most this year. Back-to-school sales have been relatively weak this year hurting clothing retailers such as Gap and Target. Over the past year, retail sales have fallen -0.4% YoY, with sales excluding gasoline falling -2.8% YoY. Areas seeing the most weakness over the past year include motor vehicles (-17% YoY), furniture and building materials have both fallen -8.3% YoY, and department store sales have slid by -4.4% YoY. Strength has been seen in gasoline stations (+21% YoY), due to higher oil prices, and food (+6.4% YoY), again due to higher prices. General merchandise (+4.6% YoY) and sporting goods (+3.2% YoY) have also improved.