Sales in Retail Up on Higher Gas

Retail Sales rose 0.5% in May from April (seasonally adjusted) both in total and excluding auto sales. From a year ago, they are down 10.8% in total and down 7.3%, stripping out autos. The rise in May more than erased a 0.2% decline in April (revised from an initial read of -0.4%).

On the surface this looks like good news. However, a total of 62.8% of the increase in total retail sales for the month came from a 3.6% increase in sales at gas stations. Since the retail sales numbers are not adjusted for price changes, this means that most of the increase was simply a reflection of the sharp increase in gasoline prices for the month -- an increase that has continued so far in June.

While this is good news for the big oil companies like Exxon (XOM - Analyst Report) and Chevron (CVX - Analyst Report) it is not particularly good news for the economy. The only other big increase was a 1.3% rise at building material stores, which confirms the positive comments made recently by Home Depot (HD - Analyst Report). Relatively minor increases were also recorded by drug stores (up 0.7%) and grocery stores (up 0.4%). If you want to invest in retail, well-run, stable demand-type stores like Walgreen’s (WAG - Analyst Report) and Kroger’s (KR - Analyst Report) are probably the first places I would look in this environment.

The more discretionary stores saw sales decline. Electronics stores recorded a 0.5% decline for the month, sporting goods & book stores fell 0.8% and department store were down 0.7%. This is not a picture of consumers loosening up their purse strings.

On a year-over-year basis, both real and nominal retail sales are still very weak as is shown in the chart below (from http://www.calculatedriskblog.com/), but there has been some stabilization in the year-over-year rate of change since the start of the year after sales fell off a cliff in late 2008. I would interpret this repot as a sign of the economy stabilizing at a low level, not as evidence of a rebound. Still, that is better than falling off a cliff.