Thursday, January 15, 2015

About that awful retail sales report

 - by New Deal democrat

Yesterday saw the second anomalous horrible number in 4 days from the Census Bureau.  Last Friday it was a big decline in average hourly wages for December.  Yesterday it was a -0.9% drop in December retail sales.  Even ex-gasoline the decline was -0.3%.

OK, obviously this was not welcome.  At the same time, one of the best quotes I saw yesterday described it as -0.6% due to energy, and -0.3% noise.  That is, either the US suddenly went into recession last month, with no warning, or else we need to take the numbers with a grain or two of salt, and wait and see what January's revisions bring.  I'm inclined to the latter for several reasons.

First of all, when we place the retail sales number in context, as in this graph below of nominal (blue) and real (red) retail sales:

we see that November and December combined will probably still prove to average higher than any other month or pair of months once December CPI is reported tomorrow.  I'll revisit this graph then.

Next, there is the problem that seasonality is particularly hard during the holiday season.  Since both of these number originate with the Census Bureau, and it has already been suggested that the number of workdays in December may have affected the wage number, there may be a glitch in their seasonal adjustment.  This makes the personal income and savings report that will be issued later this month by the Bureau of Economic Affairs an important comparison.

Similarly, the private sources of information about December sales don't paint nearly so gloomy a picture:
  • Thomson Reuters'December same store sales were up 5.1% YoY.
  • Shoppertrak reported YoY same store sales for the holiday season were up 4.6%.
  • The National Retail Federation reported that YoY same store sales for the holiday season were up 4.0%.
  • Redbook reported that YoY same store sales for December rose by 5.2%.
  • The average weekly same store sales reports for December by the ICSC were up +2.3% YoY.
  • Gallup reported that December consumer spending was up 2.1% YoY ($98 vs. $96 in 2013).
One caveat is that YoY measures can mask m/m drops.  The Census Bureau itself noted that YoY retail sales for December were up 3.2%.  But the tone of all of the private reports of holiday shopping was uniformly positive.  

Gallup does offer one bit of confirmation for the poor Census Bureau number.  In the last week of December, spending was unchanged YoY, and in the first 10 days of January, spending actually declined slightly YoY.  On the other hand, if consumers were suddenly pulling in their horns in spending, that isn't supported by Gallup's Economic Confidence measure, which continues to show Americans, on net, feel positive about the economy for the first time since 2007.

The bottom line is, I'm going to take yesterday's report with several grains of salt, see how it looks after tomorrow's CPI report, compare it with the BEA's personal spending and saving report for December later this month, and see what happens with revisions next month.