The government released its tally of August retail sales last week, which can best be described as interesting. Instead of the 1.5% increase economists were expecting, August sales supposedly grew only 0.6%. Perhaps even more questionable was the 0.5% increase in vehicle sales. A far cry from what would be expected given that vehicles sold at the third fastest pace ever in August. The surprising news of sluggish retail sales also follows what was considered by most a good month for retailers. In fact, total sales (not same store sales) for the list of 30 big retailers that I tally monthly sales for, increased 10.6% in August from last year. This was the strongest growth since March 2001. Perhaps a shred of logic which helps confirm the government sales data is that August sales were only 0.1% ahead of the 10.5% growth in July. And in fact, Julys advanced retail sales increased a healthy 1.3%. However, the government's calculation of retail sales on a year-over-year basis shows only a 3.5% increase, which was the slowest increase since March this year.

Except for the government's calculation of retail sales, most indications point to continued consumer strength. Best Buy reported second quarter earnings of $0.42 per share, which were inline with analysts' estimates and 75% ahead of last year. These results were driven by a 17% increase in revenues, due in large part to a 7.5% comparable store growth during the quarter. The largest electronic retailer noted particular strength in digital products, which grew by 30% on a comparable store basis. Looking forward, Best Buy forecasts same store sales will increase by 6% to 8% in the third and fourth quarters. Based on higher same store sales growth and higher margins, the company boosted its EPS guidance for the fiscal year ending March 31, 2004 to a range of $2.35 to $2.40. Unfortunately for investors, Wall Street estimates were already predicting $2.38 per share and the stock sold off over 2% on Wednesday. Before shedding any tears for Best Buy shareholders, the stock is still up 113% since the beginning of the year.

The difference between Best Buy and Circuit City could not be more striking. Same store sales dropped 5%, and total sales fell 3% for the number two electronics retailer. Circuit City did point out that 'sales pace during the first two months of the quarter reflected significant drops in average retails as well as slight declines in store traffic. As we entered the back-to-school season, the sales pace improved, and we produced comparable store sales growth in August despite facing a challenging comparison for August last year.' Along with Best Buy, Circuit City experienced strength in digital products including LCD and plasma televisions along with PC sales.

Homebuilders continue to report record results. Two homebuilders, KB Home and Lennar, reported earnings on Wednesday that were above analysts' estimates for at least the sixth consecutive quarter. Additionally, both companies raised guidance for the current year and for 2004. At KB Home, revenues increased 12% driven equally by unit growth and higher prices. Net orders jumped 15.8% with backlog growing 22% on a unit basis and 28.8% on a dollar basis. Results at Lennar were even better. Revenues jumped 21% aided 6% from price increases and a 13% increase in the number of units sold. New orders jumped 21.8% while backlog increased 12.7%. Also in the housing sector, Masco announced its third quarter earnings will be above previous guidance. The company said, 'operations to date have exceeded its expectations.'

Federal Express reported a 4% increase in third quarter revenue. Express shipment revenue increased by 4%, with International Priority (IP) reporting the fastest growth within the segment. While IP average daily package volume was 3%, Asian export volume jumped 9%. Domestic express daily volume increased 2%. Its Ground Segment grew revenue by 5%. Federal Express also said it will reduce its capital spending budget by $100 million this year from its original forecast.

This week, ZenithOptimedia upgraded its forecast for global advertising spending this year to 3.2% after advertising in the US jumped 6% in July. It appears that newspapers are getting left out of the celebration. On Wednesday, the New York Times reported a 1.4% decline in advertising revenue in August. While the company said, 'Septembe...has been trending better,' the weakness during the first two months of the quarter caused the company to lower its guidance for the full year. Instead of advertising revenues increasing 3% to 5% this year the company now expects growth of 2% to 4%. Moreover, the range of capital expenditures for the year decreased by about $20 million or roughly 15%. Considering that it's already September and the company has likely spent around two-thirds of the yearly capital expenditure budget, the remaining three months could be very light. The New York Times experienced, 'strength in 'telecommunications, technology products, transportation, studio entertainment, and banking' but weakness persisted in retail advertising. Classified advertising was pulled down by help wanted ads, offsetting some of this weakness was growth in automobile and real estate advertising. Knight Ridder reported similar results in August. Total advertising revenue dropped 1.6% in August. Retail was singled out as a main culprit.

Pier 1 Imports reported second quarter earnings which were inline with Wall Street estimates. However, the results were 7% below year ago levels and this was the third consecutive quarter of declined EPS. Most of the decline is based on the deleveraging that resulted in having a 4.2% decline in same store sales. The company blamed part of the sales decline on losing some sales because they ran out of inventory. Due to the global unrest, the company was 'intentionally conservative on inventories.' This has now changed and Pier 1 has, 'accelerated orders and encouraged vendors to ship early or on time in order to build inventories.'

DuPont announced that it sees its 'slower scenario is playing out.' During an industry conference Gary Pheiffer, DuPont's CFO, said 'that DuPont businesses did not see evidence of a broad turnaround in industrial demand in their July and August results, but leading indicators suggest a meaningful recover which would begin to gain momentum in the fourth quarter of 2003 and carry into 2004.'

Last week, Texas Instruments narrowed guidance to the higher end of the range. One driver for the wireless phone companies is the implementation of Wireless Number Portability on November 24. Wireless Number Portability (WNP) will allow cell phone users to change carriers and retain their current phone number. In order to get customers before WNP is implemented, wireless carriers are offering very favorable plans and incentives. The Wall Street Journal carried a story last week discussing how carriers are offering incentives to current customers trying to get them to sign a new contract before the new rules take effect. These include discounts on new phones, increased minutes, and frequent flier miles. Handset makers along with the component makers will benefit whether consumers switch or not. Even if a customer stays with their current provider, it is likely that they will still purchase a new phone. With WNP happening just days before the traditional start of the holiday shopping season, it is likely that mobile phones will enjoy a robust fourth quarter.

Trying to reconcile this mix-match of company and economic news can be confusing. But it is just a continuation of previous trends. Consumers continue to snap up goods, especially if they are able to finance the purchase. The National Retail Federation said that it predicts holiday sales will increase 5.7% from last year. While consumers have yet to acknowledge the recession that has just ended, the American manufacturing sector has been gutted. Instead of playing its more historical role of being a leading indicator, the manufacturing sector could be left behind during the recovery because of the dominate force China and other countries have become in manufacturing.