Autos drive decline in retail sales

Retail sales slipped 0.2% in April, but excluding weak auto sales, stores saw a 0.5% increase in spending.

NEW YORK (CNNMoney.com) -- Retail sales declined in April largely due to weakness at car dealers, the government reported Tuesday, but sales excluding autos surpassed expectations.

The Commerce Department reported Tuesday that total retail sales fell 0.2% last month, compared to a 0.2% increase in March. The report was in line with a consensus of economists surveyed by Briefing.com.

Stripping out volatile auto sales, retail sales rose 0.5% in April. That was well above the 0.2% increase expected by analysts and just ahead of the upwardly revised 0.4% gain posted in March.

"There could be some discretionary dollars that have been freed up simply because the consumer is not buying automotives," said Michael Niemira, chief economist with International Council of Shopping Centers. "I can be optimistic about non-automotive spending in the short term and I am."

This trend of slightly increased consumer spending is in line with the retailers' monthly sales numbers released last week. Retailers posted mostly better- than-expected same-store sales in April, although analysts were hesitant to be too optimistic.

The increase in retail spending is "a mixed story that is a little bit of a challenge" to interpret, according to Scott Hoyt, senior director of consumer economics at Moody's economy.com.

While the core retail spending numbers excluding auto spending increased in April, Hoyt said that increase is significantly boosted by consumers' increased spending on food in grocery stores, restaurants and supercenter food shops.

Consumer spending in grocery stores was up 0.6% in April, after a 0.7% increase in March, partly reflecting ongoing inflation of food prices. Sales in food and beverage stores were up 5.7% from a year earlier.

Retail spending on building materials was up 1.9% over the previous month. Some of that increase on building supplies was seasonal, as consumers looked to fix up their homes and outdoor patios for the warm-weather months.

The month prior saw a 1.5% decline in spending on building materials, however, so Hoyt said, "I am reluctant to put a lot of stock in that data."

Electronic and appliance stores saw a surprising increase of 1.4%. Sales on clothing and clothing accessories was up by a more moderate 0.7%. Consumer retail spending was up by a healthy 0.9% in April.

Gas station sales were down a surprising 0.4% in April after a healthy jump of 1.6% the month before. Sales at gas stations were up 16.3% from April 2007.

"What happened was that volume sales were somewhat weaker, because we know that prices themselves were higher, so what that then implies is that consumers were probably driving less," said Niemira.

Wal-Mart Stores, the world's largest retailer and the nation's largest company by revenue, announced better-than-expected sales in their fiscal first quarter on Tuesday.

Wal-Mart Stores, the world's largest retailer and the nation's largest company by revenue, announced better-than-expected sales in their fiscal first quarter on Tuesday.

Looking to May, "we might get an increase in sales this month coming up from the tax rebate checks," said Hoyt. But, he added, the real barometer for consumer spending will be to see how much of May stimulus check spending is on food and energy.

Consumers are expected to spend close to 20% of their stimulus checks. "At 20% of $107 billion (total government stimulus package) that is about $25 billion of spending power and that is what is likely to be the dominant story over the course of the next month or two or three," said Niemira.

"We expect it to take consumers 3 months to spend the money - the impact could last into September," said Hoyt. "The question into the fall and the holiday season is really the state of the economy."