Key Takeaways:

• Overall retail sales rose less than 1% in August compared to July, but registered a strong 15% growth year-over-year;

By Manuel Gutierrez, Consulting Economist to NKBA

Sales at Building Materials stores rose by just under 1% in August, the first gain after four consecutive months of declining sales. The $39 billion in sales is 6% higher than a year ago.

Unfortunately, the data does not distinguish whether the materials are sold for use in residential or nonresidential buildings, or whether purchasers are consumers or professionals. In fact, building materials stores such as Home Depot or Lowe’s have specialized sections that cater exclusively to pros, even though they are classified as retail stores, which incorrectly implies its sales are to consumers.

Despite the strength of homebuilding and residential remodeling over the last year, sales of building materials lag behind total retail sales. Total retail sales in August were 15% higher than the year before, 2 ½ times the growth rate for building materials (Figure 1).

Compared to July, however, August sales of building materials were 0.9% higher, which outpaced the 0.7% increase for total retail sales.

Overall retail sales reached $619 billion in August, which is at the low end of the tight range of $614 billion to $629 billion seen since this past March (Figure 2.)

Total retail sales in August were 15% higher than a year ago, 2 ½ times the lackluster 6% gain at Building Materials stores for the period.

Six months ago, total retail sales saw a substantial increase of 11% from the previous month, representing the biggest monthly jump in sales since the economy reopened in May 2020, when sales jumped by 18%. The increase in March 2021, seen in Figure 2, was partly driven by greater consumer confidence. The University of Michigan’s index of consumer sentiment rose to 85 from 76 the previous month, based on the perception that COVID-19 was under control.

Sales growth in August was dragged down by poor auto sales, which were off by 3.9% — the category’s fourth consecutive month of declining sales.

Excluding that group, retail sales were up 1.8% compared to July.

The issue within the auto industry is that dealers cannot replace low inventories of cars and pick-up trucks, since manufacturers have been facing an ongoing shortage of parts and labor, with the parts portion substantially related to computer chips. Auto inventories were just 136,000 in July, down by nearly 300,000 from a year ago. Prior to the pandemic, typical dealer inventory at any given time hovered around 800,000 vehicles.

As always, there are wide differences in sales growth among the various types of stores. Compared to the prior month, Internet sales (which includes mail-order) leads with a 5.3% increase in August, although over the last 12 months, the increase of 7.5% for internet sales lags most store types. Its annual growth only exceeds that of Building Materials stores (up 6.3%) and Food stores (up 5.7%) (Figure 3.)

Surprisingly, the store type with the fourth-largest gain in August was Department Stores, despite their overall declining importance for more than a decade.

While total retail sales have increased 61% since 2011, those at Department Stores have registered a loss of 18%.

Sales at Electronics & Appliances stores (e.g., Best Buy), have also fallen over the last decade, but by a more modest 4%. As seen in the left panel of Figure 3, aside from Autos and Sporting Goods stores, Electronics & Appliances are the other category whose sales fell for the month.

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