by Lee Adler, Wall Street Examiner
Retail sales rose in August, continuing their uptrend. The trend is gradually slowing, but the numbers are still quite robust. This is based on the actual data, not seasonally adjusted (NSA) and adjusted for CPI inflation. Unlike the headline data, this the actual unit volume of retail sales (see Note at end).
Retail sales are growing at triple the rate of jobs growth. In no way does this suggest that US consumers in the aggregate are financially healthy. Consumer credit card debt has been flat, suggesting that high income earners and international tourists and are boosting US sales numbers.
According to the Commerce Department’s Advance Retail Sales Report,
“advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $426.6 billion, an increase of 0.2 percent (±0.5%) from the previous month, and 4.7 percent (±0.7%) above August 2012. Total sales for the June through August 2013 period were up 5.4 percent (±0.5%) from the same period a year ago. The June to July 2013 percent change was revised from +0.2 percent (±0.5%)* to +0.4 percent (±0.2%).
Retail trade sales were up 0.2 percent (±0.5%)* from July 2013 and 4.8 percent (±0.7%) above last year. Auto and other motor vehicle dealers were up 12.3 percent (±2.1%) from August 2012 and nonstore retailers were up 10.2 percent (±2.1%) from last year.”
Last month I pointed out that it is no surprise that the July data was revised up when acknowledging –
“The seasonal adjustment factor played havoc with the year to year comparison. On an actual, not seasonally adjusted basis, the year to year gain was 6.76%. The seasonally adjusted data understated the actual gain by 1.4%.”
The first release data is always suspect, both due to the small sample size and the seasonal adjustment. These mistakes momentarily mislead the market as it reacts to inaccurate data. The not seasonally adjusted (NSA) August data was up 4.8% year to year compared to 4.7% for the nominal year to year change, therefore the revision should be relatively small when the data is released next month.
The median forecast of economists in mainstream media surveys was for sales to be up 0.4% month to month on a seasonally adjusted basis. The economists’ consensus was on the high side this month. It’s a guess, people. They’re almost never right. Traders know that, but they play the expectations game anyway.
The year to year change in real retail sales was +3.4% in August. Ex gasoline sales and adjusted for inflation the gain was 4.1% which was a little weaker than the 5.7% in July but still a robust number. This is consistent with the strength in real time Federal Withholding Tax data reported for August. This is the first time that real sales ex gasoline exceeded the 2007 high. It has taken 6 years, and a 6% larger US population for total unit sales to exceed their peak level reached before the crash. It also means that retail sales per capita have fallen as more Americans fare poorly, with lower income and reduced spending power. I’ll put up a post on that next week.
On a month to month basis in the actual (NSA) data , historically August is an up month, driven by back-to-school purchases. This year, there was a gain of 3.5% month to month. The average change for the 10 year period from 2003 to 2012 was +2.0%. The August 2012 monthly change was +5.1%.
Rising gas prices are a de facto tax on consumers that can cause reduced consumption of other goods and services. Conversely, a fall in gas prices is like a tax cut that puts cash back in consumers’ pockets. Gasoline prices fell about 2 cents a gallon through August according to the US Energy Information Administration. This is a non material change that should have had virtually no impact on total retail sales.
Consumers were hit with increased Federal payroll and income taxes in January. Federal budget sequestration cuts have took effect gradually between March and July. Those factors were supposed to depress retail sales, but this clearly has not shown up in this data (nor anywhere else). Gains in withholding tax collections greater than the increase in tax rates suggested that the increase in the number of jobs had helped to sustain slow growth in retail spending. Tax collections were very strong in August, suggesting that it would be a good month for retail.
Follow the real time Federal Withholding Tax chart updated weekly in the Wall Street Examiner Professional Edition.
The Fed and BoJ’s QE campaigns continue to risk stimulating rising gasoline prices. We’ve seen some lift in crude over the past couple of months but gas prices have remained rangebound. Central banks have been skillful at jawboning speculators away from commodities purchases. The Fed has been threatening a cutback in QE since January. Lately they have raised the verbal pressure. But even after the initial taper there will still be plenty of excess liquidity around, with the Fed and BoJ still pumping billions into the market each month. If gasoline prices do break out, that should begin to steal from other retail sales.
US population is growing at slightly less than 1%. A retail sales real growth rate of several times that is remarkable. The wealthy and international tourists are apparently helping to boost sales.
The growth rate had trended down even as the Fed has engaged in more money printing. That downtrend was slightly broken in July, signaling that the US economy might be heating up. In August the growth rate dropped back within the 2 year channel but there’s still enough strength there to give the Fed an excuse to announce The Taper in next week’s FOMC announcement (September 18).
Does any of this matter for stock prices? Retail sales growth had been slowing for several years before stocks topped out in the 2003-07 bull market. Stocks only turned down when the Fed stopped growing its balance sheet in mid 2007. Economic fundamentals are just a sideshow. Cash flow from the Fed to the dealers who run the games, is the market’s real driver. The Fed only pulled the punchbowl in the past when it saw reason to be worried about conventional inflation.
Current CPI inflation data isn’t sufficient to get them to do that, but the Fed has seen that QE is ineffective in boosting jobs while very effective in fomenting asset bubbles in stocks and housing. In spite of their delusion that money printing boosts growth, the Fedheads know that bubbles lead to crashes. That’s partly why they will probably announce a tapering of QE next week. Tapering QE would not trigger a bear market in stocks but it should slow the uptrend and make it choppier.
Follow the Fed Cash to Primary Dealers chart updated weekly in the Wall Street Examiner Professional Edition.
Note: When analyzing retail sales, I’m interested in the actual volume of sales, not the inflation skewed dollar total. To get to the kernel of the matter, I look at the real, not seasonally finagled retail sales, adjusted for top line CPI inflation (not core which normally understates the actual). Then I back out gasoline sales, which are a substantial portion of total retail sales. Gasoline sales distort total retail sales higher when gas prices are rising, when they actually act like a tax on disposable income and reduce non-gasoline sales. On the other hand, when gas prices fall, the top line total retail sales figure will understate any gains in the volume of sales. Gasoline sales typically account for around 12% of total retail sales. By subtracting gas sales and adjusting for inflation, the resulting number represents the actual volume of retail sales.
This analysis uses not seasonally adjusted (NSA) data due to the inaccuracy and potentially misleading nature of seasonally adjusted data.
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