August Retail Sales Research Notes

by Jim Baird on September 14, 2011

Recent weakness a concerning trend

After relatively strong sales in the prior two months, August sales were flat – a disappointing result even compared to already subdued expectations.  Today’s report from the Census Bureau also reflected a downward adjustment to July sales, suggesting that the weakness here is not an anomaly, but evidence of a more concerning trend.

Recent softness in the employment market is impacting consumer confidence and increasingly contributing to a reining in of spending habits.   The slowdown in the economy in recent quarters is increasingly apparent, and risk is increasing that the growth could be further curtailed if consumers continue to save more and spend less.

President Obama made a call to action last week to pass his proposal for reviving the jobs market to Congress and the nation.  Subsequent clarification that the cost of the plan would be covered through future tax increases and not spending cuts likely means the plan is dead on arrival in the House of Representatives, where the Republican majority has already drawn a line in the sand over tax hikes.

Anticipation is also mounting for the upcoming Fed meeting.  The convergence of economic weakness, the recent deterioration in the debt and banking crisis in Europe, and rapid easing in inflation concerns are raising expectations that the Fed will take action to provide additional monetary stimulus.

The sizable risks, both domestically and abroad, require us to remain cautious on our outlook.  With the economy already on thin ice, any further cracks could be detrimental on a broader scale.  While the economy does not yet appear to be in recession, we certainly cannot rule out that possibility in the months ahead.

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