Can You Trust the Positive Retail Sales Data?
A new report showed that retail sales in the United States rose last month for the time in four months, as consumer demand increased across all categories. However, questions still remain about the strength of American consumers.
On Tuesday, the Commerce Department reported that seasonally adjusted sales in July advanced 0.8 percent, the biggest gain since February and well above the average estimate of 0.3 percent. In comparison, sales dropped 0.7 percent in June. All thirteen subsectors that make up the total retail sales figure increased in July for the first time since April 2005. All subsectors have only increased in the same month three other times dating back to 1992, according to Bespoke Investment Group. The best category was sporting goods with a gain of 1.6 percent, followed by non-store retailers and miscellaneous retailers.
Retail sales are often viewed as an important part of the U.S. economy, because consumer spending accounts for nearly two-thirds of demand in the nation. The positive report gave a boost to several large retailers. Shares of Walmart (NYSE:WMT) gained 0.83 percent, while Target (NYSE:TGT) closed 1.39 percent higher and reached a new 52-week high of $63.47. J.C. Penney (NYSE:JCP), which is one of the most heavily shorted names on Wall Street, also jumped 1.37 percent on Tuesday.
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One of the strongest performers in the market was Michael Kors (NYSE:KORS). Shares of the luxury-goods company surged more than 16 percent after reporting a better-than-expected quarterly profit. For the quarter ended June 30, net income increased to $68.6 million (34 cents per share), compared to $24.1 million (13 cents per share) a year earlier. Michael Kors also raised its guidance for the full year.
Despite being located in the strongest July subsector, Dick’s Sporting Goods (NYSE:DKS) shares closed almost 4 percent lower. The Pennsylvania-based retailer announced a 27.3 percent drop in net income to $53.7 million (43 cents per share) for the second quarter, compared to $73.8 million (59 cents per share) a year earlier. The results fell short of the mean analyst estimate of 64 cents per share.
While the increase in retail sales provides a reason to feel better about the American economy on the surface, some question the quality of the results. Looking at the non seasonally adjusted numbers, retail sales data in July actually declined 0.9 percent from $405.8 billion to $402 billion. Zero Hedge notes, “With the July seasonal adjustment factor routinely subtracting a substantial amount from the NSA number, averaging at -$5.2 billion, in 2012, for the first time this decade the seasonal adjustment not only did not subtract, but in fact added ‘value’ to the NSA number, resulting in a seasonally adjusted number that was $1.9 billion higher than the NSA number at $403.9 billion.” If the average factor of -$5.2 billion was applied for July, retail sales would have declined by 1.3 percent, instead of increasing 0.8 percent.
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