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The Truth Behind October’s Retail Sales Report

A good trend behind the numbers is visible


Let’s get the bad news out of the way first: In October, retail sales dropped 0.3%—the first such drop in several months and a reversal from September’s 1.3% gain. Auto sales and online purchases dropped by the most in a year.

Of course, every cloud has a silver lining, and there are several, in this case.

  1. Excluding the hard-hit auto sector, retail sales remained unchanged. In fact, sales rose 1.4% at gas stations and grocery stores.
  2. Analysts knew the drop was coming—in fact, October’s drop was less severe than the 0.4% forecast.
  3. The drop was caused by Hurricane Sandy, which knocked out power to 8 million homes and businesses across the Northeast, a region that accounts for nearly a quarter of retail sales nationwide.
  4. The overwhelming consensus is that retail sales will bounce back in short order.

Let’s discuss point four, because even with the negative headlines circulating the newswires today, retail sales should be a primary growth driver this quarter.

First, while Hurricane Sandy disrupted October retail sales, the ongoing recovery efforts should boost auto sales as well as sales of construction materials.

And with Thanksgiving just over a week away, the holiday shopping rush is soon upon us. In fact, a survey conducted by Discover Financial Services (NYSE:DFS) predicts that shoppers will spend an extra $100 this holiday season over last year—bringing the total to $838 per shopper. And the National Retail Federation forecasts $586.1 billion in total holiday sales—a 4.1% jump over last year.

As to be expected, the nation’s largest retailers are doing whatever they can to get ready. In anticipation of Black Friday, the official start to holiday shopping season, Wal-Mart (NYSE:WMT), Target (NYSE:TGT), Sears (NASDAQ:SHLD) and privately-held Toys R Us are all opening their doors Thanksgiving evening—a move that has bargain hunters rejoicing and seasonal workers petitioning.

Speaking of employees, retailers have been bringing in new seasonal workers in droves: Wal-Mart, Target, Macy’s (NYSE:M), JCPenney (NYSE:JCP) and Kohl’s (NYSE:KSS) will each hire about 80,000 temp workers this season while Amazon (NASDAQ:AMZN) will add 50,000 to its workforce.

So while October retail sales may have been modest, I expect American consumers to come out in full force in the coming weeks. And I can’t wait because the way I see it, the optimism and generosity of the holiday season is exactly what the markets need to be shaken out of its current slump.

Article printed from InvestorPlace Media,

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