Retail sales keep creeping upward toward the holiday season. Numbers just released by the federal government show most retail segments had higher sales in October than September but, except for a few areas, sales are still lower than even the dismal totals seen in October of last year.

Figures from the U.S. Census Bureau show total retail sales in October -- including autos and restaurants -- were $347.5 billion, up 1.4% from September, but still 1.7% below last October. For the year to date, only health and beauty stores and "food and drinking places" -- restaurants and bars -- had higher sales, while food stores were relatively flat. Health retailers were up 3%, eateries rose 1% and grocers went up 0.1%.

Since consumer spending makes up 70% of the economy, this is not a good sign for recovery from the recession. Consumer confidence remains in the dumps, and experts warn that shoppers will stay stingy until that mindset improves.
Lower Prices Eating into Sales

But ironically, price deflation in some areas such as food, electronics and especially gasoline -- which help consumers' budgets -- may be masking a slight increase in shopping. Many retailers have noted that sales have dropped despite rising traffic, which hints that consumers are shopping, just spending less per trip.

The biggest year-over-year drops in October were among gas stations and building materials stores, which were both down 15%.

Furniture, electronics and building materials sales were all down -- no shock there, given that the housing market remains troubled. Some retailers, however, are looking at home departments for sales increases next year, anticipating homeowners will begin spending on decor once the economy shows clear signs of improvement.

Electronics stores -- down 7% from last October -- have also been hit by price drops in some of the big-ticket items, such as flat-screen TVs. That deflation even took some of the air out of the recent Wal-Mart Stores Inc. (WMT) third-quarter sales figures, when executives complained of selling 25% more TVs at prices 20% below last year's.

Apparel Retailers Hopeful

On the plus side, two big holiday players are beginning to show healthier results: Clothing stores were up 1.5% from October 2009 and the grouping of sporting goods, hobby, book and music stores was was up 2.7%. That bodes well for the holiday season, especially for apparel retailers, who took a beating last holiday.

This year, between the $10 toy and book price wars started by Wal-Mart and sharper inventory control among apparel retailers, these segments are expecting more shopper attention. But again, price deflation could take a chunk out of sales even as apparel retailers try to hold back markdowns and plan to increase prices.

Another unexpected increase came in car dealers' sales, which were up 3.5% above last year's and 8.3% above September, despite the end of the end of the "Cash for Clunkers" program. Many critics had feared the the government's rebate program would merely shift sales from later in the year, rather than spur new ones.

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