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posted on 14 February 2020

Headline Retail Sales Improved in January 2020 But Inflation Wipes Out Any Improvement

Written by Steven Hansen

Retail sales improved according to US Census headline data. The three-month rolling average improved.

.

Analyst Opinion of Retail Sales

There was a downward adjustment to last month's data. The real test of strength is the rolling averages which improved. Overall, this report is considered worse than last month and inflation ate away much of the gain.

Please consider that this data is not adjusted for inflation. There is no year-over-year growth in employment in this sector.

Econintersect Analysis:

  • the unadjusted sales rate of growth decelerated 1.1 % month-over-month, and up 4.6 % year-over-year.
  • unadjusted sales 3-month rolling year-over-year average growth accelerated 0.3 % month-over-month, up 4.4 % year-over-year.

  • unadjusted sales (but inflation-adjusted) up 2.8 % year-over-year
  • this is an advance report. Please see the caveats section below which shows variations between the advance report and the "final".
  • in the seasonally adjusted data - the strengths were gasoline stations, non-store retailers, miscellaneous retailers, and food services. The major weaknesses were in electronics, building materials, and health care stores.

U.S. Census Headline Analysis:

  • seasonally adjusted sales up 0.3 % month-over-month, up 4.4 % year-over-year (published up 5.8 % YoY last month).
  • the market was expecting (from Econoday):
seasonally adjusted Consensus Range Consensus Actual
Retail Sales - M/M change +0.3 % to 0.5 % +0.3 % +0.3 %
Retail Sales less autos - M/M change +0.2 % to 0.4 % +0.3 % +0.3 %
Less Autos & Gas - M/M Change +0.3 % to 0.5 % +0.3 % +0.4 %
Control Group - M/M change +0.2 % to 0.4 % +0.3 % +0.4 %

Year-over-Year Change - Unadjusted Retail Sales (blue line) and Inflation-Adjusted Retail Sales (red line)

Retail sales per capita are now trending up - see graph below.

Year-over-Year Percent Change - Per Capita Seasonally Adjusted Retail Sales

From the U.S. Census Bureau press release:

Advance estimates of U.S. retail and food services sales for January 2020, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $529.8 billion, an increase of 0.3 percent (±0.4 percent)* from the previous month, and 4.4 percent (±0.7 percent) above January 2019. Total sales for the November 2019 through January 2020 period were up 4.4 percent (±0.5 percent) from the same period a year ago. The November 2019 to December 2019 percent change was revised from up 0.3 percent (±0.4 percent)* to up 0.2 percent (±0.2 percent)*. Retail trade sales were up 0.1 percent (±0.4 percent)* from December 2019, and 4.0 percent (±0.7 percent) above last year. Gasoline stations were up 10.4 percent (±1.2 percent) from January 2019, and nonstore retailers were up 8.4 percent (±1.4 percent) from last year.

Seasonally Adjusted Retail Sales - All (red line), All except food services (blue line), and All except motor vehicles (green line)

The differences between the headlines and Econintersect are due to different approaches to seasonal adjustment (see caveats at the end of this post).

Comparison of the Year-over-Year Census Seasonally Adjusted Retail Sales (blue line) and Econintersect's Unadjusted Retail Sales (red line)

Declines of short duration often occur in the seasonally adjusted series without a recession resulting.

Retail and Food Services Sales - Seasonally Adjusted

And finally, as retail sales can be a component of determining a recession start date, the zero-line of the graph below could be an indicator a recession was underway (or about to begin).

Retail Sales - Recession Watch Graph

Caveats On Advance Retail Sales

This data release is based on estimates. However, the estimates have proven to be fairly accurate although tend to miss at economic turning points. Therefore up to three months are subject to backward revisions, although normally slight, can sometimes be modest.

The data in this series is not inflation-adjusted - and Econintersect adjusts using CPI less shelter CUSR0000SA0L2. The St. Louis Fed also inflation adjusts the Census seasonally adjusted data. The last two recessions began as the inflation-adjusted retail sales crossed the zero growth line.

Comparison of Real Year-over-Year Growth between FRED's Real Retail Sales (green line) and Econintersect's Inflation Adjusted Retail Sales

As in most US Census reports, Econintersect does not agree with the seasonal adjustment methodology used and provides an alternate analysis. The issue is that the exceptionally large recession and the subsequent economic roller coaster has caused data distortions that become exaggerated when the seasonal adjustment methodology uses more than one year's worth of data. Further, Econintersect believes there is a New Normal seasonality. Using data prior to the end of the recession for seasonal analysis could provide the wrong conclusion.

The impact of the monthly retail sales data on GDP is not straight forward. Real GDP (of which the consumer is over 60%) is adjusted for inflation. Further, GDP is an analysis of quarter-over-quarter or year-over-year growth, while retail sales is a monthly data series.

Econintersect determines the month-over-month change by subtracting the current month's year-over-year change from the previous month's year-over-year change.



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