October 2011 Advance Retail Sales Shows Slowing Growth

Inflation adjusted October 2011 retail sales growth rates (advance release) resumed its previous downward trend channel.  Sales continue to grow but an ever slowing rate.

US Census Headlines:

  • sales up 0.5% month-over-month, up 15.6% year-over-year

Econintersect Analysis:

  • sales down 3.0% month-over-month, and up 6.7% year-over-year
  • sales (inflation adjusted) down 3.0% month-over-month, up 1.7% 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 October, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $397.7 billion, an increase of 0.5 percent (±0.5%)* from the previous month and 7.2 percent (±0.7%) above October 2010. Total sales for the August through October 2011 period were up 7.6 percent (±0.5%) from the same period a year ago. The August to September 2011 percent change was unrevised from +1.1 percent (±0.3%).

Retail trade sales were up 0.6 percent (±0.5%) from September 2011, and 7.3 percent (±0.7%) above last year. Gasoline stations sales were up 15.6 percent (±1.7%) from October 2010 and nonstore retailers sales were up 11.1 percent (±2.3%) 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).

October was again a record month (current dollars), with 9 of the last 11 months having record sales.

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.  One thing is clear, when retail sales are adjusted for inflation, the clear downtrend in growth rate is visible.

The weakest area in retail sales this month was department stores.

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 one month backward revisions, although normally slight, can sometimes be modest.

The data in this series is not inflation adjusted – and Econintersect adjusts using CPI less housing.  The St. Louis Fed also inflation adjusts this series using the CPI.  The graph below, using data through September 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.

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