A False Positive From Retail Sales

Retail sales were up .5% in May as expected, but they were up for many of the wrong reasons creating a mirage effect about the economy’s future.

The Commerce Department numbers showed that higher auto sales figures and the sale of gasoline were critical components of the improvement. GM and Chrysler, in the midst of closing dealers, helped pull buyers into those that are being shuttered. Many have had to dump inventory at low prices to cover expenses and the banks loans that allowed them to buy cars from the manufacturers.

The more important by-product of closing dealers is rising unemployment. The day that a car franchise sells its last vehicle is probably the day that it lets his workers go. Car sales will slow in the months ahead as the “liquidation effect” comes out of the market.

Gas sales do little good for the economy and in all probability are sign of trouble ahead. Retail sales of gas are based on more price than volume. Details on driving from organizations like AAA show that the number of miles that Americans are driving is still down sharply from two years ago.  The demand for gas is shrinking while the price is rising. Many people who are paying more for fuel are struggling with household budgets. That puts mortgages and credit card debt at risk.

There is nothing in retail sales to cheer investors and much of the information points to depressing news about the economy in the near future.

Douglas A. McIntyre