Markets

Retail Sales Reveal Worrisome Weakness

By Dan Burrows

Updated on: September 14, 2011 / 11:05 AM EDT / MoneyWatch

Reports of strong back-to-school shopping and panic buying ahead of Hurricane Irene appear to have been greatly exaggerated. Growth in retail sales logged a big fat zero in August, showing consumers are more cautious and concerned than Wall Street's already tepid forecasts.

Retail sales for August were flat against expectations of 0.2 percent growth. Excluding auto sales, they rose 0.1 percent vs. an average forecast of 0.3 percent. So-called core sales, which strip out autos, building materials and gasoline, also notched no growth.

Consumer spending accounts for about 70 percent of all economic activity and retail sales make up about half of those outlays, so the latest numbers only add to the worries about overstretched consumers.

But it gets worse. Retail sales figures for July and June were also revised lower Wednesday. There's no way around it: summer wasn't so hot for retail sales.

Months of economic turbulence and uncertainty are making consumers increasingly jittery about spending money on anything but the essentials, says Brian Sozzi, retail analyst at Wall Street Strategies.

"The August retail sales report perfectly captures the main event unfolding in the European Union: contagion," Sozzi writes in a note to clients. "If we look at the performance by individual category it shows the telltale signs of most households having a willingness to cut back on extras at the first indication of 2008 Financial Crisis: Part II."

Just have a look at the retail categories that did relatively well last month, Sozzi notes:

Food and Beverage
Grocery
Health and Personal Care
Gasoline
Electronics
Building Materials
Sporting Goods

While here are the categories where consumers cut back:

Motor Vehicles
Furniture
Clothing and Accessories
Department Stores
Miscellaneous

As we learned from the U.S. census poverty data Tuesday (in which the poverty rate hit a 52-year high), there are plenty of households nowhere near escaping the aftershocks of the recession, Sozzi says.

Yes, the market's resilience lately adds to the evidence that stocks have bottomed out. But increasingly frugal consumers still make a case for allocating toward more defensive sectors -- at least until consumers and investors gain some confidence about the future trajectory of the economy.

Image courtesy of Wikimedia Commons user Marlith, CC 3.0.
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