Friday, October 15, 2004

Another wave of discounted car sales pulls the US retail sector's fat out of the fire in September.
A Commerce Department report on Friday showed U.S. retail sales rose by 1.5 percent in September, propelled by the sharpest jump in auto sales in nearly three years.

Wall Street had expected a 0.7 percent gain, following a revised 0.2 percent fall in August that was initially reported as a 0.3 percent decline.
As always, big incentives drove the auto retail numbers.
auto sales increased 4.2 percent last month, marking the biggest gain since the post-9/11 gain of 24.2 percent in October 2001.

As in that earlier month, automakers in September piled on the incentives to move inventories off dealers' lots. The carmakers earlier reported seasonally adjusted, annualized unit sales of 17.5 million in September.
As you can see from the following data, retail sales slowed markedly over the summer. From May to August, retail sales rose at an annualized clip of a mere 0.5%. Thus the big jump in September, contrary to earlier reports, is a notable turn-around.

Monthly growth in retail and food service sales (SA) for 2004:

January . . . . 0.5%
February . . . 1.0%
March . . . . . 2.1%
April . . . . . . -0.8%
May . . . . . . . 1.4%
June . . . . . . -0.7%
July . . . . . . . 0.8%
August . . . . -0.2%
September . . 1.5%

That being said, the retail sector is still clear on a "one on, one off" pattern. A big May was partly thanks to a sluggish April, and a big September is also surely due in part to a lackluster August. Two monthly gains in a row will speak loudly.

For the third quarter, retail sales grew an annualized 9.3% in nominal terms. This is a huge turn-around from the second quarter's nominal annualized -0.3% change. I guess I might just have to eat my words about US GDP growth in 2004:III. One suspects, however, that the US savings rate, which ticked up to 0.9% in 2004:II, will fall dramatically in the third quarter.

At least all those discounts and incentives will keep driving auto deflation.


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