Wednesday, August 22, 2012

Retail Sales in August 2012 Will Be Disappointing

The consumer in the U.S. is hurting. The large bills for air conditioning this summer, high priced gasoline, and the high cost of food are combining to hit consumers with a triple whammy. Disposable income is increasingly scarce in many households that are skimping to get by and pay for inflated food and energy costs.

Within my household, the battle over use of the air conditioner is becoming a major source of family conflict. We kept the house relatively cool during the record breaking heat wave in July (in my opinion, ridiculously cool), and the bill from ComEd is astronomical. We will be substituting macaroni and cheese for steak this month to cover the cost of this bill. This substitution of lower priced products and reductions in spending will be replicated in households across the country

Retail sales during August in the U.S. will be negatively effected by the reductions to discretionary income due to higher food and energy costs. The 0.8% increase in July sales came after three very weak months and consumers had  not yet felt the bite of higher prices that are just beginning to work through the production chain,” says economist Chris Low of FTN. “Because the food price increases are the result of a supply shock, not stronger demand, they will weigh on consumption down the road.”

Thus, my prediction is that the economists predicting another month of positive retail sales growth in August are going to be dead wrong. If there is any increase in sales at all, it will be due to higher costs, not increased demand. Be prepared for a disappointing retail sales reports when the August reports from are released by retailers and the Commerce Department. 

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