Written by Steven Hansen
Retail sales was strong.
- Our analysis is stronger than the headline analysis;
- backward revisions were slight;
- motor vehicles and non-store retailers continue to be the biggest strength in this months data.
- sales rate of growth accelerated 2.8% month-over-month, and up 6.8% year-over-year
- sales 3 month moving year-over-year average improved from 4.5% to 5.2%
- sales (inflation adjusted) up 5.3% year-over-year
- sales up 0.2% month-over-month, up 5.4% year-over-year
- the market was expecting between -0.1% to 0.2% month-over-month (versus the 0.2% reported)
Year-over-Year Change – Unadjusted Retail Sales (blue line) and Inflation Adjusted Retail Sales (red line)
Inflation adjusted retail sales now appears to have an upward trend channel for most of 2013. This month, the data is at the high end of the range.
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 July, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $424.5 billion, an increase of 0.2 percent (±0.5%)* from the previous month, and 5.4 percent (±0.7%) above July 2012. Total sales for the May through July 2013 period were up 5.2 percent (±0.5%) from the same period a year ago. The May to June 2013 percent change was revised from +0.4 percent (±0.5%)* to +0.6 percent (±0.2%).
Retail trade sales were up 0.1 percent (±0.5%)* from June 2013 and 5.6 percent (±0.7%) above last year. Auto and other motor vehicle dealers were up 13.3 percent (±2.1%) from July 2012 and nonstore retailers were up 8.8 percent (±2.1%) 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)
Declines of short duration often occur in the seasonally adjusted 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 growing at a slower rate in the last 12 months.
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).