This Sector the Only Bright Spot in October Retail Sales

By John Whitefoot

October U.S. retail sector sales numbers are in, but are they worth getting excited about?

The Census Bureau announced on Wednesday that October retail sector sales increased 0.4% month-over-month and 3.9% year-over-year to $428.1 billion. From a shorter-term perspective, the 0.4% increase really isn’t anything to get excited about; that 3.9% year-over-year increase, though, looks pretty good. (Source: “Advance Monthly Sales for Retail and Food Services October 2013,” U.S. Census Bureau web site, November 20, 2013.)

Or does it? Take a step back, and you can see we’ve been in a downtrend for the last few years.

In October 2010, U.S. retail sector sales were up 6.9% month-over-month. This isn’t a big surprise when you consider the so-called economic recovery only began in mid-2009. In October 2011, U.S. retail sector sales were up 7.6% year-over-year, another strong gain on the back of ongoing optimism that the economy would rebound. (Source: “Retail and Food Services Sales,”Federal Reserve Bank of St. Louis Economic Research web site, November 20, 2013.)

But then we realized the economic recovery wasn’t much of a recovery at all. In 2012, October retail sector sales were up just 4.4%, almost half the gain of the previous year, and in October 2013, U.S. retail sector sales were up just 3.9%. Looking at it from a longer-term perspective, even the recent October year-over-year numbers aren’t anything to get worked up about.

Today, we’re more than 50 months and $3.0-plus trillion into the Federal Reserve-guided recovery, and we really don’t have much to show for it. In fact, you could argue that the economy might have done better without any intervention from the Federal Reserve—it certainly couldn’t look much worse.

Sadly, the October U.S. retail sector sales figures are a little skewed. They include automotive sales, which can account for about 20% of retail sector sales. They also include building supplies and gas, which tend to be volatile and can distort the underlying trend; for example, the bulk of third-quarter gains were driven by dealers of autos and other motor vehicles, which posted an impressive 11.9% year-over-year gain.

As a result, the core U.S. retail sector sales are considered to be a better gauge of spending trends—and that gauge is almost running on empty. Core U.S. retail sector sales increased just 0.2% month-over-month, topping weak projections of just 0.1%.

Yes, auto sales are up, but so, too, is auto loan debt. In fact, U.S. auto loan debt is currently sitting at $845 billion, the highest level since the Federal Reserve starting keeping track of car loans in 1999. (Source “Quarterly Report on Household Debt and Credit,” Federal Reserve Bank of New York web site, November 2013.)

But it’s not all doom and gloom; U.S. car buyers are, for the most part, paying their loans off. The share of vehicle loans more than three months past due slipped to 3.4% in the third quarter. Mortgage delinquencies, on the other hand, stand at 4.3%, while student loans are at a detention-setting 11.8%.

When it comes to U.S. retail sector sales, the automotive industry might be one of the bright spots as we head into 2014. Two affordable automotive stocks for small investors to consider are Ford Motor Company F and auto parts store The Pep Boys Manny, Moe & Jack PBY. At the other end of the scale, two major automotive stocks include Toyota Motor Corporation TM and auto parts store OReilly Automotive, Inc. ORLY.

If you’re looking for the underlying horsepower driving U.S. economic growth right now, you can’t help but thank the auto industry.

This article This Sector the Only Bright Spot in October Retail Sales was originally published at Daily Gains Letter