What’s Driving Retail Sales?

Chart of the Week for November 16-22, 2001

October retail sales rose 7.1% over September, the biggest monthly increase ever, and 7.5% from a year ago. However, while these increases are impressive, they present something of a distorted view of consumer spending. Two factors must be considered to better understand the current retail environment. First, the figures must be viewed in light of September’s extremely weak data brought on by the terrorist attacks. It should not be surprising that consumers released pent up demand in October. Second, October sales were greatly enhanced by a surge in auto sales, spurred by aggressive financing offers. Excluding autos, retail sales rose 1.0% over September, but again, because of the events in September, a simple month-to-month comparison may be misleading. Compared to October 2000, retail sales excluding autos rose 1.6%— the slowest growth in eight years. This indicates consumers may still be reluctant to spend in the face of rising unemployment and possible future terrorist attacks. Consumers did get out and shop, but they will need to continue doing so if retailers are to have reason to cheer this holiday season.

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