“Paycheck Shock” Reins in January Sales

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\"Bite-In-Pay-Check\"More to Come From The Beltway?

It’s President’s week, so instead of staying in Washington to work out a compromise that would avoid huge mandatory budget cuts, Congress has left town for recess. Little wonder, then, that consumers have been in a less-than-freespending mood of late. Last month, for example, found them more bargain-hungry than ever, particularly after seeing the big bite new taxes took out of their paychecks.

January retail sales rose by a little over 4.4% on a 12-month smoothed basis, to a seasonally adjusted $4.9 trillion. Growth was slightly below that of the prior two months.

Much of the improvement was due to a surge in auto sales. Detroit has benefitted from record numbers of people finally breaking down, so to speak, and replacing their 10-year-old vehicles. Excluding autos, total retail sales increased by only 3.1% in January.



Why The Long Face?

The anemic retail sales growth can be traced right back to consumer frustration and Washington ineptitude. According to the Conference Board, the weak prognosis for economic recovery sank its Consumer Confidence Index in January, essentially wiping out all the progress made in 2012.


January’s six-point drop in the index was exacerbated by people’s shock at how much their take-home pay was hurt by the increase in payroll taxes and Medicare surcharges. These increased taxes affected tens of millions of people, not just the One Percent. I don’t know how anyone could have truly been shocked by this, though, unless they’ve been living in a cave for the past few months.

Growth Rates by Major Channel

Apparel store sales rose 3.6%, to $20.3 billion, less than last month’s 4.2% gain, with much of the sales due to widespread clearance events held to reduce bloated inventories. The mid-month arrival of cold weather in the Northeast sent consumers scurrying out to buy outerwear, boots, and other seasonal items. Of course, we’ll see soon enough the impact of all this on quarterly earnings.

Department, discount and chain stores fared better in January than in recent months, with a drop of less than 1%, better than the prior two months. Sales in the sector, which now total $15 billion, have declined during 21 out of the last 25 months.

Sales growth at food and beverage stores declined slightly in January, but have remained relatively stable in the past year after dropping rapidly in late 2011.

The Surge in Nonstore Retailing

Traditional retail channels had better watch out, though, because the pure-plays are moving in on them. The fastest growing sector in retail in January was the non-store channel which, driven by gains in e-commerce and m-commerce, rose 15.5% on a 12-month smoothed basis. The sector has enjoyed monthly growth rates of between 10% and 16% for virtually all of the past 15 months, and at a seasonally adjusted $39 billion in sales is now bigger than both the department and specialty store channels combined.

Of course, if Washington doesn’t stop the nonsense and start restoring confidence in the future, we can look forward to many more months of lackluster retail sales growth.



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