Free Fall In Auto Sales Adds Drop In July Retail Sales

Implications: Retail sales in July fell 0.1%, the first overall decline in five months, with the 2.4% plunge in automobile sales the primary reason for the poor performance.

Analysis: The Commerce Department reported retail sales fell 0.1% in July, the first overall decline in five months, with the 2.4% plunge in automobile sales the primary reason for the poor performance.

Auto sales have now fallen 10.5% on a year-over-year basis, the steepest decline in almost six years as consumers weigh the impact of higher gasoline prices and tighter credit during a period of uncertainty for the economy. Last month was the weakest month for Detroit motor vehicle sales in 16 years.

Excluding autos, retail sales rose 0.4%, also the worst reading since February, with most of this increase coming from gasoline station sales.

On a year-over-year basis, retail sales have risen just 2.6%, a figure that is not adjusted for inflation, and here too, the bulk of the gain can be attributed to rising fuel costs. Stripping out gasoline station sales, up 24% over the last year, retail sales show annual gains of just 0.2%

Gasoline station sales rose 0.8% in July as the amount of fuel purchased (in volume terms) again declined, however, with prices now falling, this trend is likely to reverse next month.

The effect of $92 billion in government rebate checks, distributed mostly in May and June with a tiny portion sent out in July, have clearly worn off, though most believe that only about ten percent of this money went to discretionary purchases, the vast majority of the money going to service existing debt or into savings.

With little signs of the current stall in auto sales being over, it seems likely we will see further negative effects on retail numbers as we head into the Fall .