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Retail sales drop driven by cars
End of 'employee discount' programs sends overall figure down 2.1%; gasoline lifts ex-auto figure.
September 14, 2005: 2:21 PM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - Despite the slump in last month's retail sales from an expected drop in auto purchases, some economists say they're encouraged by an uptick in sales of other discretionary items such as furniture and electronics, which shows that consumers so far are continuing to take higher gas prices in stride.

"Even with the weakness in the headline number, the rest of the story looks good," said Michael Englund, chief economist with Action Economics. "June, July, August have all shown strength in retail sales outside of autos."

The Department of Commerce reported that overall retail sales fell 2.1 percent in August compared with a 1.8 percent gain in July, which was fueled by robust auto sales as consumers rushed to take advantage of the "employee discounts" offered by the Big Three automakers.

Economists surveyed by had forecast retail sales to decline by 1.4 percent.

Stripping out auto sales, retail sales rose a better-than-expected 1 percent compared to a revised 0.5 percent gain in August, the one caveat being that much of the gains was due to a boost in sales of food and gasoline.

Economists, on average, had expected an increase of 0.5 percent.

As was widely expected, auto sales tumbled 12.9 percent in August after surging to record levels in July. Department store sales slipped 0.3 percent.

Among the categories that showed gains, sales at gasoline stations increased a strong 4.4 percent, boosted by a surge in prices.

Sales of health and personal care products grew 1.2 percent. Sporting goods sales rose 0.5 percent. Clothing sales were flat.

Electronics sales grew 0.3 percent while consumers also picked up furniture and home furnishings, pushing sales up 0.9 percent in that category.

"I continue to believe that the effects of higher gas prices on the consumer are overestimated," said Richard Hastings, senior retail sector analyst with Bernard Sands. "Most of the important measures of discretionary spending such as furniture, lawn and garden and food sales held up nicely."

"What's holding up the consumer is habit," Hastings added. "Until things change in a very material manner, American consumers won't alter their shopping habits significantly. The jobs market is strong and there's been a little bit of improvement in wage growth. I still don't believe that gas prices are high enough to derail consumers. If there is one thing that could shake consumers it's the housing market and not gas inflation."

Analysts say the nation's housing market has made consumers feel wealthier, acting as another bulwark against rising energy prices. At the same time, if rising interest rates combine with higher oil to dent housing, that could stymie economic growth.

"As long as housing prices don't go down, consumers have more equity they can borrow against. If mortgage rates go up another 1.25 or 1.5 percent and pierce 7 percent -- watch out," Peter Morici, economist at the Robert H. Smith School of Business at the University of Maryland, wrote in a note last month. "That's when the housing bubble bursts and consumers would cut back on spending a lot."

Others, however, do see signs that higher energy costs are pressuring consumers.

JP Morgan senior economist Anthony Chan points to the 1.8 percent increase in online sales and catalog sales last month as an example. "Our own studies have shown that consumers tend to switch over to non-store outlets in times of higher energy costs ," Chan said.  Top of page

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