Chain Store Sales Crimped By Higher Gas Prices & Inclement Weather

Chain store sales fell 1.0% last week. Abundant rain, warm temperatures and, versus February, a 12% rise in gasoline prices to an average $2.15 per gallon may have caused the spending decline. The y/y gain in sales improved in part due to the early timing of Easter in 2005.

Consumers' pause came after spending enough to lift the average of sales in March 1.1% ahead of February according to the International Council of Shopping Centers (ICSC)-UBS survey.

During the last ten years there has been a 56% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of nonauto retail sales less gasoline.

The leading indicator of chain store sales from ICSC slipped 0.5% (-0.6% y/y) and gave back all of the moderate gains during the prior two weeks.

The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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The March Index of Consumer Confidence published by the Conference Board fell 1.9% to 102.4 from an upwardly revised February level. Consensus expectations had been for a reading of 103.0 and the decline followed a 0.7% drop in February.

During the last twenty years there has been a 51% correlation between the level of consumer confidence and the y/y change in real consumer spending. The correlation rose to 66% during the last ten years.

The March index of consumer expectations fell for the third consecutive month (+2.6% y/y) following an 11.6% surge in December. The present situation index fell modestly (+37.0% y/y) after rising strongly in the prior four months.

Jobs were viewed as hard to get by 23.8% of survey participants, up slightly from the February low. Expectations for income in six months grew poorer as fewer respondents (16.7%) expected an increase and more expected a decrease (9.3%).

The Conference Board’s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

After strong economic data for Japan in January, the latest indicators are disappointing. Retail sales declined by almost 3% from January to February and were only 0.9% above February, 2004. Employment declined 0.4% in February and unemployment was up 2.7%, resulting in a 2 percentage point increase in the unemployment rate to 4.7%

In spite of lower employment, the average worker's household income increased by 4.5% in February and his disposable income was up 5%, suggesting an increase in wages. These data are, however, seasonally unadjusted. The seasonally adjusted index of worker's income actually shows a decline of 0.3%. Such a decline together with concern over employment prospects as a result of the rise in the unemployment rate may have been an important factor causing the average household to reduce living expenditures by almost 9% seasonally unadjusted or 4% seasonally adjusted in the month. The indexes of the worker household's expenditures and the broader retail sales series are shown in the attached chart.