Retail sales have been miserable, falling for a record five straight months through November. But excluding gasoline, retail sales rose 0.5 percent for the month, instead of down 1.8 percent, and consumer sentiment is improving.

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Retail sales have been miserable, falling for a record five straight months through November.

But excluding gasoline, retail sales rose 0.5 percent for the month, instead of down 1.8 percent, and consumer sentiment is improving.

Retail sales reflect consumer spending, which drives 70 percent of economic growth. As spending recovers, so will the economy.

Although consumer sentiment is at an extremely low level, it has gotten better, and the readings have a high correlation with retail sales, says Jack Ablin, chief investment officer at Harris Private Bank.

At the end of last month, the Conference Board’s Consumer Confidence Index, a survey on attitudes about the economy, rose nearly 16 percent, to 44.9 from 38.8 in October.

On Friday, the University of Michigan Consumer Sentiment Index ticked up from its low in November, rising nearly 7 percent from last month.

“Expectations could plunge again,” says Ablin, but “all in all, retail sales are tracking consumer sentiment.”

IHS Global Insight economist Brian Bethune notes that “while consumer spending is indeed weak, aggressive discounting seems to be working in terms of keeping consumers engaged.”

Plus, adds Bethune, lower energy prices are giving consumers extra cash to spend. Retail sales rose across several categories in November, including electronics, clothing and sporting goods.

Ablin thinks discounting will put a floor on retail sales. He expects discounts to accelerate at retailers now owned by private-equity firms.

Highly leveraged retailers, such as Toys ‘R Us, Nieman Marcus and Dollar General, will have to “dump inventory” this holiday season, says Ablin.

“These guys don’t have deep enough pockets to play a game of chicken with their competition.”