An Inside Look at the Retail Sector

Retail sales are rising. What's causing this?

Retail sales rose again in May according to the Census Bureau on Thursday, offering another indication that the second quarter is night be a bounce back for the economy as a whole, since consumer spending is such an important part of it. The bureau, which adjusts its numbers for seasonal variation and holidays and the like, but not prices changes, said that sales were up 1.2 percent for the month, which compares favorably to a 0.2 percent increase in April. Monthly increases tend to be volatile, however, but compared with last year sales weren’t bad either, coming in at a 2.7 percent increase since May 2014.

Much of the increase since last year was because of the sales of cars, with an 8.2 percent rise in auto sales year-over-year. Other kinds of retailers likewise have done very well since May 2014. Food service and drinking establishments enjoyed an increase of 8.2 percent in sales year-over-year, and sporting goods, hobby, book and music stores experienced an 8 percent increase. Even furniture stores—which suffered a great deal during the recession—managed to chalk up a 6.2 percent increase in sales since last year. A few categories were still losers over the year. Gas stations saw a drop of 18.6 percent because gas is much cheaper now than a year ago, but department stores have no such excuse. They lost 3 percent in sales since last year, presumably because many of them are becoming things of the past in the opinion of many consumers.

In fact, take gas sales out of the equation, and retail sales did even better for the year but not the month. Without gas, the monthly increase in retail sales was 1 percent, reflecting the uptick that gas has seen lately because it usually goes up for the summer. But year-over-year, retail sales were up a very healthy 5.2 percent without gas. It’s worth noting that according to AAA, the average price for a gallon of regular gas is now $2.761. A month ago, the average was $2.659 a gallon. A year ago, however, the average was $3.644 a gallon.

Perhaps not coincidentally, the more-or-less continuous expansion in retail sales, at least on an annual basis, comes as net U.S. household worth has expanded back beyond pre-recessionary levels. The Federal Reserve reported on Thursday that aggregate household net worth rose to $89.4 trillion in Q1 2015, up from $80.3 trillion in the first quarter of 2014 and a low of $56.4 trillion in 2009. The recovery has had two drivers, the rise in the value of residential real estate, which has been slow (mostly) since the recession, and increases in equities markets, which has been much quicker. Any impact the increase in household net worth has on retail sales is indirect, but the “wealth effect” does seem to be a real motivator in spending. When people have more in terms of assets, not all of which are liquid, they still tend to spend more of their liquid assets.