Consumer spending still showing strength

Post-holiday consumer spending continued to show some underlying growth as retail sales expanded 0.6% in January excluding auto sales, the U.S. Census Bureau said today. This follows a 0.3% increase in consumer spending excluding posted in December.

Volatile auto sales darkened the overall retail sales picture however, as a 3.3% slide in motor vehicle parts and dealer sales resulted in a 0.3% decline in retail sales. In comparison, December’s 1.2% jump in retail sales was boosted primarily by auto sales.

The fundamentals for ‘05 are good in a sense that [holiday sales] wasn’t a disaster so that it hasn’t left inventories bloated in the supply chain,” analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), told Fleet Owner. “It appears inventories are in-line or lean, in terms of sales volumes.”

Auto sales, which accounts for about a fifth of the total retail sales, have typically been volatile on a month-to-month basis, but have been trending up just over 5% year-over-year (YOY). Car sales are expected to soften as the Federal Reserve continues to make “measured” increases on interest rates.

“Even the auto OEM’s were predicting for slight increase in sales for 2005,” Brady said. He added that the expanding overall consumer spending would drive auto sales growth. “However, there’s no pent-up demand for autos coming out of the recession.”

Bob Costello, chief economist of the American Trucking Assns. (ATA) believes that tonnage will continue to expand based on the strong YOY consumer spending growth. For the November through January months of the holiday shopping season, retailers netted an 8.3% increase in sales compared with the same period last year.

“That’s a large increase,” Costello told Fleet Owner. However, this trend is no guarantee that 2005 will be a gangbuster year for tonnage since it also relies on how consistent holiday sales expectations were with actual sales, he pointed out.

“However, I still remain optimistic about consumer spending but I expect [its growth] to slow down,” Costello said.

“[For tonnage] the big question is whether consumers and businesses can sustain their spending levels,” CMVC’s Brady said. “The last couple employment reports have been sluggish, so can consumers sustain strong spending growth despite the slow job market.”

But for now, freight conditions are very strong based on inventories still appeared to be lean as consumer and business spending continued to expand, Brady said.