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Brian Jacobsen

Retail sales ready for a hit

AdvantageVoice® Blog—11-14-12
Brian Jacobsen, Ph.D., CFA, CFP®, Chief Portfolio Strategist

Retail and food service sales declined 0.3% in October from September, according to the advance monthly sales report from the Census Bureau.  Excluding motor vehicles and parts—which tend to be volatile—retail and food service sales were effectively flat, at $336,814 million for October. 

While the report is somewhat weak, it doesn’t give me any reason for concern as there were a few special factors contributing to  the decline in retail sales:

  1. September sales for electronics increased 1.6%, mainly due to the release of the new iPhone, so it wasn’t surprising to see that October electronics sales were down 1%. 
  2. Motor vehicles and parts sales were down 1.5%, probably because people were hesitating on new car purchases in anticipation of Hurricane Sandy.  We will likely see an increase in these sales over the next few months.

November and December tend to be the big shopping months for many people.  This season may be better than last year’s because employment and income levels have improved.  There is the looming fiscal cliff, which could dampen holiday spirits, but consumer confidence and sentiment numbers have been increasing, so politics are unlikely to be the Grinch that stole Christmas.  Instead, politics could lead to problems in January if the payroll tax cut isn’t extended.  If, all of a sudden, workers’ take-home pay declines by 2% because of the expiration of the payroll tax cut holiday, retail sales could drop.  There is also the expiration of the emergency and extended unemployment insurance benefits that could cut off unemployment checks for roughly two million individuals.  People tend to smooth their consumption over their lives, so a sudden change in income doesn’t translate into a one-for-one change in spending, but it will likely serve as a mild drag on spending.

The views expressed are as of 11-14-12 and are those of Chief Portfolio Strategist Brian Jacobsen, Ph.D., CFA, CFP®, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.

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