Retail sales data give analysts insight into consumer strength

Consumption is the US economy’s biggest driver, and it accounts for 70% of GDP (gross domestic product). Consumption has been relatively subdued since the recession began. During the bubble years, Americans were able to rely on real estate appreciation to drive consumption. However, they’re now forced to depend on wage growth, and wage growth has been abysmal for years.

The Census Bureau releases retail sales data monthly. The report is the advance retail sales estimate, so it’s based on incomplete data. The data are subject to revision, and the Census Bureau releases final sales data the following month.

Advance retail sales come in way below expectations

The headline retail sales number fell 0.9%—well below expectations of -0.1% Ex-autos retail sales fell 1.0%. Ex-autos and ex-gasoline retail sales were down 0.3%.

Note that the fall in gasoline prices influenced the headline number. That said, falling gasoline prices increase other disposable income—and even that wasn’t enough to help the control group, which was down 0.4%. The control group strips out the more volatile items like gas, autos, food, and building materials.

It’s looking like December took a step back economically, as we’ve seen from the ISM surveys. This number was awful, given that the setup was for a strong number, with lower gas prices, good weather, and an extra shopping day.

Implications for retail REITs

Consumer spending indirectly drives retail REITs. More spending drives more stores and lowers vacancy rates. Retail REITs include Taubman Centers (TCO), Macerich Company (MAC), and Federal Realty Investment Trust (FRT).

Right now, it appears that mall REITs like Simon Property (SPG) and General Growth Properties (GGP) are in the best position, with trophy properties and good locations.

Another way to invest in the REIT sector is through the Vanguard REIT Index ETF (VNQ).

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