Buy Less But Pay Lots More

Buy Less But Pay Lots More, And Get A Misleading Rise In Sales

By Floyd Norris | 16 February 2008

Faced with tightening credit and a slowing economy, America’s consumers are being forced to scale back their purchases pretty much across the board, but high and rising prices of necessities are keeping their overall purchases rising at an apparently strong rate. The retail sales report for January showed overall retail sales that were stronger than many economists had expected, and was well received by the stock market on Wednesday, the day it was released.

In total, retail sales are running more than 4 percent over the level of a year ago, an increase that is above the overall inflation rate and much stronger than the sales were when the last recession began in early 2001. But the overall change is misleading. One reason for its strength is that prices of necessities are up sharply over the past year, meaning that those items consume more and more of the household budget, leaving less for other things.

Over all, Americans are spending about 13 percent more on food and energy now than a year ago. The figures, as are all the figures shown in the charts accompanying this article, are based on three-month moving averages of seasonally adjusted figures, and compare this year with last year. The biggest cause of that increase is gasoline, of course. Americans are spending 22 percent more now at gasoline stations than they did a year ago. Food costs are up nearly 6 percent, a smaller amount but still a drain on budgets.

As can be seen in the charts below, when the economy was entering recession in early 2001, total retail sales were growing at a much slower rate than they are now. But the necessities of food and energy were growing at a much slower rate, and that rate was falling rapidly. Those declines in prices helped to offset the impact of the downturn on consumers. But the situation is less bright now for many categories of retailers. One chart shows the combined sales of general merchandise stores, like department and clothing stores and discounters like Kmart. The figures include shoes and jewelry, and show that total sales now are up less than 4 percent over the past year, a lower rate than in early 2001.


Click Here, or on the image, to see a larger, undistorted image.

Although not shown separately in the charts, department store sales are now declining at an annual rate of almost 3 percent, but other general merchandise stores are doing better, perhaps reflecting decisions by some consumers to save money by shopping at discounters. Among clothing retailers, sales at both shoe stores and men’s clothing stores have declined from a year ago, and the 1.1 percent gain for women’s clothing stores is the smallest in several years. Stores dedicated to women’s clothing now take in about four times as much as stores dedicated to men’s clothing, a proportion that has been rising gradually in recent years.

The final chart above shows an annual decline in sales of furniture and appliances, including electronic equipment. That is no surprise given the fall in home sales, but it may come as a surprise that sales from computer stores are now falling at an annual rate of almost 5 percent.

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