Retail Sales Seem A Little Soft in September 2012

Written by Steven Hansen

Advance Retail Sales were mixed in September 2012 depending if you follow the headlines or dive into the data. The headlines say everything is good, but the data definitely is not as good as last month – and wipes out last month’s better data.

  • Electronics stores showed the most gains month-over-month;
  • the headwinds this month again were weak brick and mortar department stores.
  • There is no indications of a recession in retail sales – and the backward revisions (although adjustments were up) were slight.

Econintersect Analysis:

  • sales down 2.9% month-over-month, but up 3.0% year-over-year
  • sales (inflation adjusted) down 2.5% month-over-month, up 1.5% year-over-year

U.S. Census Headlines:

  • sales up 1.1% month-over-month, up 4.8% year-over-year
  • the market was expecting 0.7% to 1.0% sales growth month-over-month (versus the +1.1% reported)

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

Inflation adjusted retail sales have mostly remained in a channel between 2% and 6% year-over-year increases since the end of 2010. This month, the improvement was lower than this channel (one month is not a trend).  There is no obvious trend except the rate of improvement seems stable.

From the U.S. Census Bureau press release:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $412.9 billion, an increase of 1.1 percent (±0.5%) from the previous month and 5.4 percent (±0.7%) above September 2011. Total sales for the July through September 2012 period were up 4.8 percent (±0.5%) from the same period a year ago. The July to August 2012 percent change was revised from 0.9 percent (±0.5%) to 1.2 percent (±0.3%).

Retail trade sales were up 1.2 percent (±0.5%) from August 2012 and 5.3 percent (±0.7%) above last year. Nonstore retailers sales were up 15.0 percent (±3.1%) from September 2011 and auto and other motor vehicle dealers were up 9.3 percent (±2.5%) from last year.

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

It is obvious from the above graphic that motor vehicle sales much of the time do not track overall retail sales.

The differences between the headlines and Econintersect are due to different approaches to seasonal adjustment (see caveats at the end of this post). Long and medium term trends always agree comparing the adjusted to the unadjusted data – it is the short term trends and month-over-month change where the conflict occurs.

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

The seasonally adjusted data is showing a peak in March 2012. If this trend continues, it would become a recession marker. However, declines of short duration often occur in this series without a recession resulting.

Retail and Food Services Sales – Seasonally Adjusted

Using employment as a gauge to check growth, employment in retail has been declining in 2012.

Retail Employment – Total Seasonally Adjusted (blue line, left axis) and Year-over-Year Change Unadjusted (red line, right axis)

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 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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