Inside Retail Sales

US November retail sales missed estimates Tuesday, with a reading of +0.2% m/m versus expectations of +0.6% m/m. At the same time, inventories rose +0.8% m/m, matching expectations. On the surface, this might appear to be negative news—after all we’d prefer to see sales beat estimates and drive inventory drawdown. However, it’s important to put monthly economic numbers in context. Although slightly missing expectations, retail sales continued to grow and set a new all-time high. One month of missed estimates isn’t necessarily telling about the American economy’s health.

Despite seemingly perpetual fears to the contrary, US consumers appear healthy. On a year-over-year basis, retail sales grew 6.7%. Retail sales growth remains above its 40-year average and near recent highs. Importantly, retail sales growth rates typically fall well off their highs prior to recession, something we simply haven’t seen to date (see Exhibit 1).

Exhibit 1: Year-Over-Year Change in Retail Sales

Source: Thomson Reuters.

It’s also worth noting the categories related to holiday sales saw the strongest growth in Tuesday’s release. Segments such as electronics stores (+2.1% m/m), catalogue & internet (+1.5%) and clothing stores (+0.5%) showed solid results. Autos also gained at a healthy +0.7% m/m clip. Following stellar black Friday results, which rose 6.6% y/y to a record, this bodes well for the holiday shopping season.

As for the uptick in inventories, keep in mind this comes on the heels of a significant inventory drawdown in Q3—which detracted from US GDP by an impressive 1.0%. So even with the increase, inventories remain extremely lean. This is also visible in the inventory-to-sales ratio, which remains near an all-time low.

Exhibit 2: Business Inventories-to-Sales Ratio

Source: Thomson Reuters.

There’s only so far you can draw down inventories—you need something on your shelves. Therefore, if the recent indications of a holiday strength continue, the coming weeks could force inventory re-stocking and make for a very merry holiday season for all.