Retail Sales 2007: What Happened?, 1-16-08
Retail is the second-largest industry in the U.S. by number of businesses and number of employees. Retail sales in the U.S. (total retail sales include the categories of gasoline, automobiles, and food service) were up about 3.8% in 2007, to $4.49 trillion (Plunkett Research estimate). The 2007 growth was driven partly by higher gasoline costs as well as by deep price discounting during the Christmas season by mass merchandisers and year-long discounting by automobile dealers.
Retail sales in 2007 were affected by several factors:
1) Sales of both new and existing homes slowed dramatically.
While homes themselves are not counted in retail sales figures, buyers of these homes are a significant force at retail stores where they purchase furniture, appliances, linens, consumer electronics and garden supplies to fill up their new residences. Likewise, builders and remodelers are a strong factor in retail sales, when they purchase supplies, materials, appliances, etc. at retail outlets. The 2006-2007 slowdown in building and remodeling led to reduced sales at home centers such as Home Depot.
2) Another factor was interest rates on home mortgages:
From 1998 through part of 2006, Americans were refinancing their existing home mortgages in record-setting numbers. In doing so, they took advantage of very low mortgage interest rates. Many homeowners also increased the balance on their mortgages, taking advantage of rapidly rising home values that increased their borrowing power. Borrowing against home equity lines of credit was also high, and much of that money went to retail purchases. Homeowners were spending this cash windfall freely, driving up retail sales in many categories. However, by the second half of 2006, the slowing real estate market, along with higher mortgage rates, meant that the party was over. This definitely had a negative effect on retail sales.
3) Another major negative impact was the growing number of homes that were and are going into foreclosure as their owners are unable to meet monthly payments.
Many of these foreclosed homes are part of the subprime mortgage fiasco that is rocking financial markets, where borrowers have poor credit or inadequate income. Also, a large portion of foreclosed homes are those subject to rising monthly payments due to adjustable rate mortgages.
4) The sale of gasoline at the pump is included in retail sales figures.
Extremely high prices per gallon for gasoline have shown up as growth of total retail sales in America. At the same time, consumers have been forced to allocate a larger portion of their household budgets for gasoline, electricity and heating oil, leaving fewer dollars left over for discretionary retail spending.
To find out more about these exciting trends and others, check out Plunkett’s Retail Industry Almanac 2008, or go to www.plunkettresearch.com and sign up for a subscription to Plunkett’s completely up-to-date online database!
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