Breaking down April retail sales report

Myles Udland, Brian Sozzi, and Julie Hyman break down the April retail sales report and the state of consumers with Moody’s Vice President & Senior Credit Officer Charlie O’Shea.

Video Transcript

JULIE HYMAN: Another surprising economic data point this morning. This one, retail sales for last month coming in lower than estimated. No change in the month of April. 1% was the gain that economists have been looking for and an upwardly revised gain in March of 10.7%. To talk more about this, let's bring in Charlie O'Shea. He's Moody's vice president and senior credit officer and looks at retail specifically. And Charlie, you know, what happened here? What do you think is responsible for this miss?

CHARLIE O'SHEA: You know, calling it a miss is kind of tough. This is just the most unique retail environment I think I've experienced in my career. And that's going back a long time. I don't know that we're going to be able to glean anything meaningful when we start looking at month over month comps or month by month comps, given all the dynamics going on in the economy. I mean, you've got stimulus maybe this month, not this month. You've got tax. You know, they've extended the tax filing deadlines, so refunds are probably being delayed. There's all sorts of things going on here. And it's really hard to parse through it all and figure out what the consumer is really thinking and with data like this.

BRIAN SOZZI: Charlie, consumer companies across the board are raising prices-- restaurants, retailers. What's going to be the impact on consumers this summer?

CHARLIE O'SHEA: Brian, that depends. I think that it depends on kind of the whack-a-mole impact of that. If something's up, there's something else down. Is the thing that's up something that a consumer really wants or needs, and they're willing to pay up for it? I mean, you know, we've just gone through a little bit of an issue with gas prices over the last week or so. And I don't know that miles driven have reduced. So it's really hard to tell. And I'm not trying to punt it or kick it down the road.

But it's really difficult when the consumer has been getting stimulus. And what have they done with it? We saw some data last year with the early checks that they're paying down their debt. What are they doing now? Are they going to spend that money? And is a five or six or seven or whatever the price increases could potentially be, is that enough to keep them on the sidelines? And we really don't know.

I mean, we live in a retail environment in the US where people like to buy stuff. And they haven't been doing a lot of that. Will they want to buy stuff? Will they want to buy things that they wanted to buy last summer that they didn't buy because they didn't know what was going on in anywhere? And that's the open question right now. There's a lot more art to this and science, in my view.

MYLES UDLAND: And Charlie, speaking of things that have been in short supply and are clearly creating distortions-- and I know they get backed out of the core numbers on both the inflation and the core retail side-- but the auto sector, I mean, has just kind of been all over the map. How do you think about that? I guess, I would ask it this way. Is there a way to look at what's happening in autos as a sign that consumer demand clearly exists and just might not be captured to the extent-- or to the same extent in some other measures of spending and inflation?

CHARLIE O'SHEA: Well, I'm lucky I cover the auto retail space at Moody's, so I'm kind of front and center here. What you've seen, there's been a confluence of events there as well. Last summer, you saw dealers weren't buying new vehicles from the manufacturers. They were sitting on the sidelines and winding down existing inventory. So you didn't see the promotions. And you saw average price per vehicle go up, gross profit per vehicle, which is infinitely important, go up as well.

Then you've seen the used businesses take off. All of the major [INAUDIBLE] I cover-- and I also cover Carvana on the used side-- they're all just exploding with used. They're buying cars off the street. One of my kids is thinking of trading in her car. And the price for trading has been going up steadily over the last couple of months, which means the dealers are competing for business. So this is where it's going to get a little murky because as an analyst, I'd almost rather a dealer sell a used car than a new car because they have more flexibility surrounding price both ways. Then they get the-- you know, they get the finance and insurance business. Maybe they get the parts and service down the road.

So it's just tough. I was looking at one of my dealers the other day. And their new inventory days for new vehicles is under 40. And, you know, that can be 80 to 100 in a normalized situation. So there is scarcity of vehicles. And the chip shortage is impacting it in some fashion. But then you had the shutdowns last summer that they're still cycling through.

So I don't know what you draw from that. The consumer is still going to buy a vehicle if they need it. We saw last year, they-- 2020, the dealers blew the doors off profitability wise. And we're seeing strong Q1 numbers so far, even compared to 2019. So something is happening. The dealers are, obviously, making more money. Car sales were soft last year. We expected them to be soft. The used numbers are the ones I think that are keeping the dealers going.

JULIE HYMAN: Hey, Charlie, you know-- and that was reflected in the 3% increase we saw month over month in April in motor vehicles and parts. It's so interesting to me when we drill down into the various segments. Furniture and home furnishings down 7/10 of 1%, building materials down 4/10 of 1%. But then also, you have clothing down 5% and non-store retail-- which traditionally has been code for Amazon, right, and other pure play-- that was down 6/10 of 1%. So, to me, there are some head scratchers in here. Let's take that last one.

CHARLIE O'SHEA: Yeah.

JULIE HYMAN: What do you think was going on there?

CHARLIE O'SHEA: Well, we saw Amazon's numbers for Q1. They looked pretty good. And we're going to hear from Walmart and Target in the next several days. I honestly don't know. I think a lot of it could be classification. Walmart will classify a buy online, pick up in store one way. Amazon picks up Whole Foods. If you look at Amazon's reporting, for instance, physical store sales have been dropping. Well, I don't think Whole Foods is underperforming. I just think it's a classification issue.

So I don't know that. That's one category that has mystified me over the years when I look at that census data and I look at non-store retail. Because we get-- we're insiders so we get very granular data from our issuers. And the data that we get, oftentimes, doesn't match that. So, you know, maybe-- it is a survey. Maybe there's some quirks to the data. But, you know, with Amazon rolling like it's rolling and 30% revenue growth, 25% revenue growth year over year, I don't know how that number can be negative, especially in this environment where you still have people, in some markets, hesitant to go to a physical store. They'd rather buy online. That number is a head scratcher, as you put it.

JULIE HYMAN: Well, it'll be interesting when we get the next quarter from Amazon to see if there's any hint of that in their specific numbers. Charlie, always great to get some time with you. Charlie O'Shea is Moody's vice president--

CHARLIE O'SHEA: Thanks.

JULIE HYMAN: --and senior credit officer. Thanks so much.