The U.S. Census Bureau reported today that Advance Monthly Retail Sales for July decreased 0.1% from the prior month to $342.3 Billion, worse than the 0.7% rise analysts were expecting and the first monthly drop since April. From the year ago period, sales were down 8.3%. Excluding automobiles, retail and food services sales were down 0.6% from June, less than consensus estimates for a gain of 0.1%, and a decline of 8.5% from a year ago.
Part of the monthly decline can be attributed to gas price deflation, as gas stations saw a 2.1% decline in sales from the prior month, and were down 32.5% from last year. Sales of autos and auto parts were very strong, led by the government’s cash for clunkers program. However, almost all other categories showed continued weakness, led by Building Materials and Department Stores, which had their worst month-over-month decline this year.
While the government’s CARS program has provided a boost to auto sales, which seem to have stabilized at a very low level, there don’t seem to to be any other near-term catalysts driving consumer demand. Retailers have responded by continuing to slash inventories, as the Commerce Department announced today that business inventories dropped for the 10th consecutive month. However, even with the cuts the inventory to sales ratio still stands at 1.38, which is higher than the 1.26 figure reported a year ago.
Though cost-cutting and inventory management has allowed many retailers to stay profitable and surprise on the bottom line, sales continue to languish and consumers continue to hunker down. With news this morning that weekly unemployment claims remain stubbornly high and foreclosures are still spiking, it’s likely retail sales won’t see much improvement in the near term.
Click here to see results by sector.
Retailers have absolutely no pricing power right now, both in core staples, but especially in discretionary goods. They can maintain unit sales with deep discounts, but absent those discounts they can’t generate units. They can’t move the top line, margins remain under pressure, and earnings continue to be driven by cost cutting. It’s not a good formula, and the longer the consumer holds back, the more it becomes a cultural norm rather than just a rational economic response. This is not likely to be reversed any time soon, and until then retailers have to scratch and claw as best they can.