The August sun warmed shoppers’ hearts as increased optimism about the economy helped drive up retail sales. We analyze the numbers and look ahead to see where opportunity might be lurking.
Retail sales in August increased by 0.6% overall and 0.3% excluding the auto sector, reported the Commerce Department. For the video report, click here. August followed an improvement in July, as seen in the chart below. In August, shoppers took advantage of end-of-summer discounts on last year’s models to buy new vehicles. August auto sales rose an impressive 17.5 million – the best showing since January 2006 (Source: Autodata Corp).
Exhibit 1: U.S. Retail Sales
Source: Eikon
Income levels holding steady
Among the trends leading people to open their wallets — personal income has been on the rise, and gasoline prices have been falling. Consumers have taken advantage of lower interest rates and bought homes. In turn, strong home sales have led to robust home improvement and furnishing purchases. These trends are expected to continue over the next few quarters.
Exhibit 2: Personal Income
Source: Eikon
Feeling good
Lululemon beat Q2 earnings expectations on Sept. 11, suggesting consumers are still willing to pay $100 for a pair of yoga pants. A day later, the Thomson Reuters/University of Michigan consumer sentiment report showed its index rose to 84.6 in early September, the strongest showing since July 2013. Sales of electronic items are weak, but this sector tends to outperform during the holiday season. What’s more, shoppers have been waiting for the new releases of the Samsung and Apple iPhone.
Exhibit 3: Thomson Reuters/University of Michigan’s consumer sentiment index
Source: Eikon
Ringing holiday bells
The back-to-school season is in full swing, showing healthy gains for retailers that should continue through September. The rise in personal income and improved confidence bodes well for retailers going into the holiday season. The S&P500 Consumer Discretionary sector index is expected to see a dip of 2.8% in Q3, but then a robust 15% gain in Q4 2014. Similarly, Same Store Sales are expected to outpace last year’s in Q4 at 1.6% vs. 0.7%.
Exhibit 4: Same Store Sales Index
Source: I/B/E/S data
Show me the money
Consumer credit use has improved significantly, posting the best showing since November 2001. Credit growth is driven by auto loans. Revolving credit/credit card use is up as well. Non-revolving credit, including auto and student loans, also is on the rise.
However, watch employment reports in the coming months. If consumers feel unemployment may be on the upswing, they could snap those wallets shut.
Exhibit 5: U.S. Consumer Credit
Source: Eikon
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