December 2011 Advance Retail Sales Disappoints Christmas Pundits

Christmas retail has to disappoint the pundits who were forecasting a big jump of sales in December 2011.   Although the Census adjusted numbers say there was a slight improvement month-over-month, the Econintersect analysis sees the numbers down almost 1%.

Interestingly, both the Census and Econintersect analysis shows sluggishness in general merchandise stores and electronics / appliance stores.  Evidently the consumer did not go wild handing out expensive gifts.

US Census Headlines:

  • sales up 0.1% month-over-month, up 6.5% year-over-year
  • the market was expecting 0.4% to 0.5% sales growth month-over-month

Econintersect Analysis:

  • sales down 0.9% month-over-month, and up 6.2% year-over-year
  • sales (inflation adjusted) down 0.9% month-over-month, up 2.0% year-over-year

From the US Census Bureau press release:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $400.6 billion, an increase of 0.1 percent (±0.5%)* from the previous month and 6.5 percent (±0.7%) above December 2010. Total sales for the 12 months of 2011 were up 7.7 percent (±0.4%) from 2010. Total sales for the October through December 2011 period were up 7.0 percent (±0.5%) from the same period a year ago. The October to November 2011 percent change was revised from +0.2 percent (±0.5)* to +0.4 percent (±0.2%).

Retail trade sales were virtually unchanged (±0.5%)* from November 2011 and 6.3 percent (±0.7%) above last year. Nonstore retailers sales were up 10.6 percent (±2.5%) from December 2010 and gasoline stations sales were up 8.9 percent (±1.7%) from last year.

The difference between the headlines and Econintersect are due to different approaches to seasonal adjustment (see caveats at the end of this post).  Also note in the caveats the FRED graph with inflation adjusted retail sales – and this graph correlates to what Econintersect is saying about continuing “less good” inflation adjusted retail sales for most of 2011.

December was again a record month (current dollars), with the last 10 months having record sales. Thinking that retail sales are bad may be looking at the empty portion of the glass half full – as inflation adjusted growth remains stronger than population growth.  Retail sales are expanding from any perspective.

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. As the CPI is not yet released for the current month, Econintersect uses the previous month’s value in its analysis.

The St. Louis Fed also inflation adjusts this series using the CPI. The graph below, using data through November 2011, demonstrates how well retail sales track recessions. For this reason the metric is worth tracking closely.

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 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. This is the best of the bad options available to determine month-over-month trends – as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).

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