By Dirk van Dijk of Zacks.comNEW YORK ( Zachs.com) -- Retail Sales were better than expected in November, and the numbers for October were revised sharply higher. Total retail sales rose 0.8%, much better than the 0.5% consensus expectation, and are up 7.7% from a year ago. October was revised up from 1.2% growth to 1.7% growth, which makes the overall level of retail sales much better than the consensus was expecting (up 0.5%). The retail sales report is a very broad-based measure of consumer spending. Since consumer spending makes up 71% of the economy, it is a very important number. That overstates things a bit, since retail sales are mostly about the sale of goods, not services, and services make up two thirds of what consumers spend.
The lack of adjustment for price changes means that sometimes increases really are not good news -- most notably in the case of gas stations. Their sales surged 4.0% on the month, and are up 9.0% from a year ago. The increase in October was well above the increase of 1.3% in October. Clearly that is mostly a function of higher gasoline prices. In recent weeks the price of oil has rallied, and so we will probably see gas station sales rise again sharply in the December report. Grocery store sales rose 0.8% on top of a 0.6% increase in October. That could be a bit of an indication of food price inflation, but could also be a case of people getting a bit more confident and starting to buy brand-name products rather than generic store brands. Relative to last year, sales are up 3.2%. Food price inflation has not been a big long-term problem, at least looking back over the last year. However, food commodity prices have been strong over the last few months, and it is something to keep an eye on going forward. Drug stores like Walgreen's ( WAG) also had a pretty good month, with sales up 0.9%, accelerating from a rise of just 0.2% rise in October, and are up 5.0% year over year.
On the other hand, sporting goods and hobby stores saw strong sales, with growth of 2.3% on top of 0.6% growth in October and up 12.3% year over year. Autos, appliances Furniture and sporting goods are all areas where consumers can very easily put off buying if they are worried about the future. The mixed bag of results for the month in these discretionary categories is thus giving no clear signal about the overall tone of the economy. Sales in the building materials and garden center stores like Home D ( HD) were down 0.1% on the month, after rising 3.3% in October and are up 12.3% from a year ago. Given how weak the construction industry has been, up 12.3% from a year ago is a very strong showing. But then again, a year ago things were pretty depressed. It may also be that people are spending more to spruce up their existing place, rather than move into new homes. The one discretionary area that did show some rebound was in clothing stores like The Gap ( GPS), where sales were up 2.7% on top of a 1.2% rise in October. Relative to a year ago they are up 3.5%. A new pair of jeans is a bit less discretionary than a new kitchen table, but more discretionary than going to the grocery store. Colder weather might have also played a role in the strong showing for the month. Going out to eat and drink is also a very discretionary item, and sales at bars and restaurants were up 0.1%, down from a 0.5% rise in October, and are up 3.9% year over year.
That is one of the reasons that the consumer confidence numbers are probably the most overrated economic indicators around. You have to look at what consumers do, not what they say, and the two are often different. This report suggests that consumer spending will be a nice contributor to GDP growth in the fourth quarter. We will need that help given the likely drag from lower residential investment, slowing government stimulus (including cut backs at the state and local level). Of course, this is just two of three months, and by far the most important of the three is yet to come.