Pundits are throwing out various reasons (including some apparent incorrect auto sales data) for reasons why January 2012 advance retail sales are improving at a weak rate. The expectations were for retail sales improvement 2 to 3 times higher than what was reported.
Econintersect analysis is that retail sales are not warning of an impending economic crash – but appear to be disappointing for those who want retail sales to lead a recovery.
No matter how the data is cut, retail sales are expanding faster than population growth – and roughly paralleling GDP. Looking at inflation adjusted data which gives a better feel of the quantity of things being purchased – shows the rate of growth has been roughly the same over the last 4 months.
- sales up 0.4% month-over-month, up 5.8% year-over-year
- the market was expecting 0.8% to 1.2% sales growth month-over-month
- sales down 0.3% month-over-month, and up 5.6% year-over-year
- sales (inflation adjusted) up 0.5% month-over-month, up 2.1% 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 January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $401.4 billion, an increase of 0.4 percent (±0.5%)* from the previous month and 5.8 percent (±0.7%) above January 2011. Total sales for the November 2011 through January 2012 period were up 6.3 percent (±0.5%) from the same period a year ago. The November to December 2011 percent change was revised from 0.1 percent (±0.5)* to virtually unchanged (±0.3%)*.
Retail trade sales were up 0.4 percent (±0.5%)* from December 2011 and 5.5 percent (±0.7%) above last year. Food services and drinking places sales were up 8.2 percent (±1.8%) from January 2011 and building material and garden equipment and supplies dealers were up 8.1 percent (±2.6%) 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 – however, the inflation adjusted retail sales should be considered flat over the last 4 months.
January 2012 was again a record month (current dollars), with the last 11 months having record sales. Retail sales appears to be dragged by an expanding economy – not leading the economy.
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 December 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).