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Retail construction depends on employment, incomes, autos and homes02/15/2012 by Alex Carrick
U.S. total retail sales in January were +0.4% month to month and +5.8% year over year, according to the Census Bureau.
The figures are in current dollars (i.e., the effects of inflation are not considered) and they are seasonally adjusted. They also take into account differences in the number of trading days in each month.
The year-over-year change in sales remained strong, but it did mark the fourth straight month of deceleration. Since the 8.1% gain last September, the positive percentage change has been easing back.
In the period since the end of the recession in mid-2009, the year-over-year change in total retail sales peaked at +8.5% in July of last year.
The year-over-year change was higher in all 16 months preceding this latest January. That’s a time frame dating back to September 2010.
“Motor vehicles and parts” is the largest sub-category (18%) in total retail sales and it was -1.1% month to month and +7.3% year over year in January.
The retail categories that contributed most to the overall month-to-month sales gain were general merchandise stores (+2.0%), gasoline stations (+1.4%) and food and beverage stores (+1.3%).
Motor vehicle and parts dealers (-1.1%), as well as non-store retailers (also -1.1%), detracted from the overall month-to-month gain.
On a year-over-year basis, five sub-categories recorded increases higher than the total retail sales gain of 5.8%. They were: food services and drinking places (+8.2%); building materials and garden equipment (+8.1%); furniture and home furnishings (+7.8%); gasoline stations (+7.4%); and motor vehicle and parts dealers (+7.3%).
Perhaps the biggest surprise in the U.S. retail trade numbers was the performance of non-store retailers. This category includes sales made over the Internet. Extending back some time, it has consistently recorded double-digit percentage increases year over year.
In January, web-based sales were only +4.9% year over year. On a month-to-month basis, they were down 1.1%. Perhaps buyer fatigue played a role. Although the numbers are seasonally adjusted, the very large increases leading up to Christmas would have been hard to sustain in January.
The latest personal income and outlays report (December 2011) for the U.S. economy indicates consumers are still concentrating on reducing their debt loads. This shows up in an increase in the savings rate.
However, there have been significant increases in U.S. employment over the past six months. One million more people are currently working than in July of last year. That’s a big injection of incomes and purchasing power.
A next step is to consider how retail sales are doing versus the level of employment in the sector.
In January, the year-over-year percentage change in retail employment in the U.S. was +1.3%, which was slightly less than for all job categories (+1.5%).
The transportation and warehousing employment picture was more bullish at +2.4%.
For our industry, the ultimate question is what all of this means for construction activity.
In 2011, there were already indications that investment in retail construction was taking a turn for the better in America.
According to Reed Construction Data, the value of retail construction starts in the U.S. in 2011 was +23.1% versus 2010.
An increase of a similar order of magnitude was recorded for warehouse starts, +21.4%.
Warehouse work is about distribution and logistics. These projects are the low-rise structures seen in light commercial and industrial parks, as well as strung out along railroad lines and clustered at airports and seaports.
Their usage is closely tied to the retail sector, manufacturing and foreign trade.
The outlook for retail and warehousing work in the U.S. has turned brighter.
In Canada, the first indication of how retail sales might perform each month is contained in the motor vehicle sales report. The auto sector makes up a little higher percentage of the total (22%) here than in the U.S.
In December, motor vehicle sales in Canada were down for the second period in a row at -3.0% month to month. That doesn’t augur well for the total retail sales figure, which is usually released about a week later.
In Canada, retail sector employment in January was flat. The number of jobs in transportation and warehousing was -1.8% year over year.
The fact that total employment in Canada has been treading water since the mid-way point of last year acts to restrain the growth in overall retail sales. It’s a prime reason for not being as optimistic about retail construction prospects this year as one would like to be.
Shopping mall, motor vehicle services and other retail construction starts in Canada in 2011 were -4.5% in square footage, according to CanaData, the statistics and forecasting arm of Reed Construction Data Canada.
There will be some cyclical improvement in 2012, especially as more U.S. retail giants test the waters north of the border. But more significant increases will probably have to wait until next year and beyond.
There is one final observation to make about shopkeeper activity levels, both in terms of sales and investment. A great deal of retail sales activity is directed towards what takes place in the home. This ranges from alteration and renovation projects to the purchase of appliances and entertainment systems.
In 2012, the U.S. home-building sector is set to gradually improve. In Canada, residential ground-breakings are likely to be flat at best.
Based on latest three-month averages of current dollar adjusted data (and placed in latest month).
Adjustments are for seasonal variation, holiday and trading day differences, but not for price changes.
Chart: Reed Construction Data - CanaData.