Buy baby, buy

August retail sales were up in the United States by 0.4%.  This figure compares to a July retail sales figure of up 0.3%.  Excluding automobiles and parts, retail sales rose 0.6% last month.  If you were to exclude the same category, car-stuff, in July, retail sales were up a paltry 0.1%.  Consumers mostly purchased clothing, gasoline and groceries; in other words, essentials.

Analysis: There are several good and noteworthy things about today’s U.S. Commerce Department data:

1.  Retail sales were up for the second month in a row.  Additionally, if you strip out the category made volatile by the “cash for clunkers” program, that is autos, then sales were up 0.5% over the previous month.  This helps to allay my fears that consumers were about to hunker down.

2.  August’s 0.6% up vs. July’s up of 0.1% represents an acceleration in spending.  Perhaps a sign of building momentum.

3.  Retail sales being up by an adjusted 0.5% is a strong result given that personal incomes have unfortunately not been growing by a similar magnitude.  What that means is that folks are likely to have bought more than they earned last month.  Normally I wouldn’t consider this to be a good thing.  However, it is indicative of two important things.  One, for consumers to spend more than they earn requires some confidence on their part.  Two, for consumers to spend more than they earn requires that either credit or savings is available.

The U.S. consumer has really impressed me over the past two years because they have proven that they can exist in a state of a balanced budget.  That is, they have mostly spent only what they have earned.  For the long term health of the U.S. economy to be assured this was important.  The previous 15 years saw U.S. consumers spending lots more than they earned.  This wasn’t sustainable.  August’s retail purchases likely exceeded personal income growth, but only by a very small percentage.  The health of the economy requires that people every once in awhile take a chance.  So I consider this to be a positive result.  Does that make sense?

Mitigating factor to popping a champagne cork:

Consumers bought staples mostly and even then they had to be induced tremendously to buy those staples.  Those incentives took the form of back-to-school sales and tax-free promotions in more than twelve states.

Importance grade: 8; while retail sales is a very important number, remember that 2 data points (July and August) do not demonstrate a trend, only a line.  I would love to see how September sales perform before declaring a return to confidence on the part of the consumer.

Jason